2013-12-10 13:40:25 - Recently published research from Business Monitor International, "Russia Business Forecast Report Q1 2014", is now available at Fast Market Research
We see inflation arriving at 6.8% by end-2013, slightly above Central Bank of Russia's (CBR) inflation target of 5.0-6.0% for 2013, and at 5.8% in 2014, a slight downward revision from our previous 2014 forecast of 6.0%. The hawkish rhetoric of the new leadership at the CBR in our view is a demonstration of their political independence, while the rate cut we expected to see over H213, is now likely to take place in H114.
We continue to forecast a slowdown in Russian economic growth, which should arrive at 2.0% in 2013, down from 3.4% in 2012, with a slight acceleration to 2.5% expected in 2014. As households come under pressure from slowing credit growth and incomes, we are sceptical that
investment is able to pick up the slack any time soon, hampered by the structural inefficiencies of the economy.
Full Report Details at
- www.fastmr.com/prod/751983_russia_business_forecast_report_q1_20 ..
The precarious security situation in the North Caucasus poses a major challenge for the Russian authorities, who are at risk of losing control of this vital region. The Kremlin has few good options, and will most likely maintain a combination of repression and federal subsidies, but tough security policies will create a backlash that could undermine its position further.
Major Forecast changes
The rapid decline in Russia's current account surplus in 2012 signals that the erosion of export competitiveness is occurring faster than we had expected, hence our decision to revise down current account surplus forecasts. We now expect a surplus of just 2.7% and 1.9% of GDP in 2013 and 2014, with the surplus to shift to deficit by 2017.
Key risks to outlook
Unless we see strong moves towards liberalisation of the economy, we remain sceptical that Russia can change its current consumption-centred commodity-dependent growth model into an investment-oriented one. The diminishing windfall from oil and commodity prices will put into sharper relief the structural impediments to investment, such as corruption, grossly inefficient bureaucracy, poor property rights and questionable independence of the judiciary among others.
These will make it difficult for investment to pick up the slack from falling state revenues, which in the past decade of high oil prices have bolstered rising incomes and living standards. However, the appointment of former finance minister and prominent liberal Alexei Kudrin, to head state-controlled Sberbank's strategic committee might be a step towards liberalisation of the banking sector. Although no concrete steps are taken yet, a move in this direction will prompt us to revise our outlook on the economy.
Partial Table of Contents:
Major Forecast changes
Key risks to outlook
chapter 1: political outlook
BMi political risk ratings
european energy Grip Loosening
- Russia's economic and political influence in Europe is in decline as its grip on Europe's energy markets diminishes. While the country will remain a major supplier of European energy for the foreseeable future, its footprint in the region is being undermined by tighter EU legislation and energy diversification, both of which have been largely driven by a desire to reduce dependence on Russian energy.
taBLe: poLitica L oVerVie W
Long term political outlook
Who Will eventually succeed putin?
- Speculation about President Vladimir Putin's eventual successor will increase over the coming years, especially as the 2016 parliamentary and 2018 presidential elections approach. Although there are some emerging candidates, we believe that the eventual successor may well come as a surprise.
chapter 2: economic outlook
BMi economic risk ratings
Growth Model under pressure
- We continue to forecast a slowdown in Russian economic growth, which should arrive at 2.0% in 2013, down from 3.4% in 2012, with a slight acceleration to 2.5% expected in 2014. As households come under pressure from slowing credit growth and incomes, we are sceptical that investment is able to pick up the slack any time soon, hampered by the structural inefficiencies of the economy.
taBLe: econoMic actiVit Y
Monetary easing Delayed until early 2014
- We see inflation arriving at 6.2% by end-2013, slightly above Central Bank of Russia 's (CB R) inflation target of 5.0-6.0% for 2013, and at 5.5% in 2014, a slight downward revision from our previous 2014 forecast of 6.0%. The hawkish rhetoric of the new leadership at the CBR means in our view is a demonstration of their political independence, while the rate cut we expected to see over H213, is now likely to take place in H114 .
taBLe - MonetarY poLicY
prioritising short-term political Gains
- Although Russia's revised budget envisions lower revenues in 2014-2016 as the authorities have adjusted downwards their expectation for economic growth, we expect the budget shortfall to exceed their forecast over this period. The revised plan does little to address the country's bloated pension and social security system, as it prioritises short-term political objectives over long-term fiscal sustainability.
taBLe: F isca L poLicY
Balance of payments
slowing exports to narrow current account surplus
- Rapid narrowing of Russia's current account surplus will continue over the next few years, driving the current account balance into negative territory by 2017. Falling oil and gas prices, which comprise the lion's share of the export basket will be mainly responsible for this trend, and persistent net financial account outflows might threaten Russia's external accounts once the current account shifts into deficit beyond 2017.
taBLe: current account
chapter 3: 10-Year Forecast
the russian economy to 2022
Major Long-term Growth challenges
Full Table of Contents is available at:
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