Russia Country Risk Report Q1 2020

Russia Country Risk Report Q1 2020

Russia's economic recovery peaked in 2018. Its long-term growth potential looks subdued because of its highly centralised economic model, large government footprint, reliance on energy exports, poor business environment 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 as well as to Russia's very 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 to increasingly exploit opportunities to foster closer ties with eastern nations, including China, Japan and even North Korea.

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 weaker growth than we are currently forecasting, given the potential for oil prices to undershoot our forecasts and for political tensions to escalate.


Executive Summary
Core Views
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Growth In Russia To Rebound But External Risks Remain Prominent
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
Proposed Law On Tech Companies A Risk To FDI Prospects In Russia
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: TOP FIVE GOODS IMPORTS, 2018
TABLE: TOP FIVE GOODS EXPORTS, 2018
Monetary Policy
Central Bank Of Russia Easing Cycle To Continue
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Russia To Loosen Fiscal Policy But Only Moderately
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES, 2018
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
THIS 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.Russia Country Risk Q1 2020ContentsCurrency Forecast
Easing Cycle To Gradually Reduce Rouble's Appeal
TABLE: FITCH SOLUTIONS CURRENCY FORECAST
10-Year Forecast
The Russian Economy To 2028
Long-Term Economic Stagnation Without Reforms
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Ukraine Conflict: Near-Term De-escalation Plausible, But Long-Term Resolution Elusive
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Putin Facing Far Greater Challenges Over 2019-2028
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
Manufacturing Weakness And Rising Political Risk To Weigh On Growth
TABLE: GLOBAL MACROECONOMIC FORECASTS (2018-2023)
TABLE: DEVELOPED MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: RUSSIA – MACROECONOMIC DATA AND FORECASTS

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