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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.
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