Russia Business Forecast Report Q2 2011
Business Monitor International, March 2011, Pages: 57
Recovery Firmly On Course
The Russian recovery will continue to strengthen through 2011, with the economy forecast to expand by 4.3%, from 4.0% in 2010. This will be driven increasingly by private consumption and investment, though higher oil prices will also cause exports to make a strong contribution. Government spending should also contribute positively, as the Kremlin attempts to shore up support ahead of parliamentary and presidential elections in 2011 and 2012 respectively. Over the long run, Russia is forecast to remain a strong convergence play, with real GDP growth outstripping that of the global average. Moreover, we expect domestic drivers of growth to become increasingly important over the next decade, which should create opportunities for investors in a number of sectors, including retail, banking, autos and pharmaceuticals.
The deadly bomb attack at Moscow’s Domodedovo airport on January 24 is likely to result in a hefty domestic crackdown, with Russian Prime Minister Vladimir Putin keen to protect his record of improving security ahead of parliamentary and presidential elections. On the social side, we caution that things could get ugly, with tensions between Russian nationalist groups and immigrants from the North Caucasus (where the suicide bomber is thought to have come from) already high. The market reaction will be much more muted, with similar incidents in recent years having failed to significantly concern investors in Russia.
Merchandise trade data for November show the surplus continuing to tick higher, and we expect this to remain the case into 2011 on the back of higher oil prices. With the current account also having posted a healthy surplus in 2010 according to a preliminary estimate by the Central Bank of Russia, we reiterate our bullish rouble view. O ur view that the recovery in the Russian banking sector would remain relatively sluggish has played out, with real asset and loan growth rates remaining in the low single digits. We expect this to continue through to end-H111 at least, due to elevated inflation and weak consumer confidence, in line with our expectations for household consumption to struggle through the first half of the year. That said, we reiterate our view that the medium-term prospects for the Russian banking sector look extremely healthy, with credit demand from households and businesses likely to rise substantially.
Executive Summary
Recovery Firmly On Course
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Airport Attack: Security Crackdown Ahead
The deadly bomb attack at Moscow’s Domodedovo airport on January 24 is likely to result in a hefty domestic crackdown, with Prime Minister Vladimir Putin keen to protect his record of improving security ahead of parliamentary and presidential elections
Table: The North Caucasis: Profile Of The Republics
Foreign Policy
PR Offensive Gathering Steam
The US Senate’s ratification of the New START nuclear arms reduction treaty on December 22 is a concrete milestone in improving relations between Russia and the United States
Table: Political Overview
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Motoring On Into 2015
We hold to our forecast for the Russian economy to grow by 4.3% in 2011, slightly above consensus, driven by elevated oil prices, strong investment, government spending and a pick-up in consumption by the second half of the year
Table: ECONOMIC ACTIVITY
Monetary policy
Gearing Up For A Rate Hike
Following the Central Bank of Russia (CBR)’s decision to hike reserve requirements on January 31, we reiterate our view that an increase in the benchmark refinancing rate will occur by end-Q111
Table: MONETARY POLICY
Balance Of Payments
Higher Oil Prices Boosting Exports
Merchandise trade data for November show the surplus continuing to tick higher, and we expect this to remain the case into 2011 on the back of higher oil prices
Table: CURRENT ACCOUNT
Fiscal policy
Oil Prices To Boost Fiscal Accounts
We expect Russia to post a 3.1% of GDP fiscal deficit in 2011, revised from 3.6% previously
Table: FISCAL POLICY
Currency Forecast
RUB: Room For Further Gains
Industry Forecast
Banking: Major Growth On The Cards
Our view that the recovery in the Russian banking sector would remain relatively sluggish has played out, with real asset and loan growth rates remaining in the low single digits
Table: BMI RUSSIA CURRENCY FORECASTS
Table: EXCHANGE RATE
Industry Forecast
Improved Banking Outlook As Economic Growth Firms
Chapter 3: 10-Year Forecast
The Russian Economy To 2020
Trend Growth To Settle Lower As Drivers Shift To Domestic Demand
Over our 10-year forecast horizon, Russian trend growth is expected to slow markedly, and we project real GDP growth to average average 4.2% between 2016 and 2020
Table: RUSSIA Long-Term Macroeconomic Forecasts
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Table: BMI Business And Operation Risk Ratings
Table: BMI Legal Framework Rating
Infrastructure
Market Outlook
Table: Labour Force Quality
Table: Em erging Europe – Annual FDI Inflows
Table: Trade And Investment Ratings
TABLE: TOP EXPORT DESTINATIONS
Operational Risk
Chapter 5: Key Sectors
Consumer Electronics
Table: Consumer Electronics Overview
Freight Transport
Table: Air Freight, 2007-2015
Table: Road Freight, 2007-2015
Table: Rail Freight, 2007-2015
Chapter 6: BMI Global Assumptions
Global Outlook
Growth Solidifies, But Inflation Poses A Threat
Table: Global Assumptions
TABLE: GLOBAL & REGIONAL REAL GDP GROWTH % CH G Y-O-Y
TABLE: CONSENSUS FORECASTS
Chapter 7: Sector Forecast Appendix
Table: Autos Sector Key Indicators
Table: Food and Drink Sector Key Indicators
Table: Infrastructure Sector Key Indicators
Table: Oil and Gas Sector Key Indicators
Table: Pharma Sector Key Indicators
Table: Telecoms Sector Key Indicators
Table: Defence and Security Sector Key Indicators
Table: Freight Key Indicators
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