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Russia Country Risk Report Q1 2019

Russia Country Risk Report Q1 2019

Russia is emerging from recession, but its long-term growth potential is subdued, closer to that of mature developed economies rather than a higher growth emerging market This is due to the highly centralised nature of its economic model and large government footprint in key sectors, reliance on energy exports, poor business environment, weak investment growth and lack of structural reform momentum

Vladimir Putin's overwhelming election victory presages a continuation of his tough foreign policy towards the West, and an economic policy that will deliver only limited reforms

Russia's sovereign profile is strong, given a large international reserve pile, low public debt, and stable current account and net international surpluses That said, major fiscal reforms are needed, including an overhaul of the pension system, to ensure long-term sustainability in light of lower commodity prices and an ageing demographic profile

The Central Bank of Russia's shift to a free floating rouble and adoption of an inflation targeting regime has brought major dividends in terms of financial stability and a taming of inflation Over the coming years we see inflation converging towards a long-term average of 4 0%, owing to the central bank's increased cred-ibility and to Russia's weak long-term growth potential

From a foreign policy perspective, while relations with the West will remain on ice, the prolongation of US and EU sanctions will not pose major headwinds to the economy In addition to that, we expect Russia will increasingly exploit opportunities to foster closer ties with eastern nations, amongst others China, Japan, and even North Korea Major Forecast Changes

We now expect the Central Bank of Russia to keep its key rate on hold at 7 50% until end-2018, following a surprise hike in September and given rising inflation-ary risks We had previously expected further easing this year

Key Risks

Growth drivers will be elusive in the absence of a significant ramp up in structural reform momentum In addition to that, the outlook is further clouded by rising political tensions with the West Overall, risks are tilted towards a weaker growth than we currently are forecasting, given the potential for oil prices to undershoot our forecasts and for political tensions to escalate Russia Country Risk Q1 2019


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Consumers Will Provide Limited Impetus To Growth
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
US Sanctions Risks Hastening Improvements In Russia's External Position
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 GOODS IMPORTS, 2017
TABLE: TOP 5 GOODS EXPORTS, 2017
Monetary Policy
Near-Term Risks Tilted Towards Further Tightening
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Government Under Pressure To Ease Fiscal Consolidation
Structural Fiscal Position
TABLE: MAIN REVENUE & EXPENDITURE CATEGORIES, 2017
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Russia Country Risk Q1 2019THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.ContentsCurrency Forecast
RUB: Near-Term Gains Coming To An End
TABLE: FITCH SOLUTIONS CURRENCY FORECAST
10-Year Forecast
The Russian Economy To 2027
Long-Term Economic Stagnation Without Reforms
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
US Withdrawal From INF Treaty To Exacerbate Tensions With Russia And China
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Putin Facing Far Greater Challenges Over 2018-2027
Operational Risk
TABLE: OPERATIONAL RISK
Economic Openness
TABLE:FREE TRADE AGREEMENTS
TABLE: TARIFF AND NON-TARIFF TRADE BARRIERS
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
TABLE: BARRIERS TO FDI
Utilities Network
TABLE: ELECTRICITY RISKS
TABLE: FUEL RISKS
TABLE: TELECOMMUNICATIONS RISKS
TABLE: WATER RISKS
Global Macro Outlook
Inflation And Policy Risks Rising
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: RUSSIA – MACROECONOMIC DATA & FORECASTS

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