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Russia Country Risk Report Q3 2018

Russia Country Risk Report Q3 2018

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 continu-ation 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 adop-tion 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 credibility 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, among others China, Japan and even North Korea.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Souring US-Russia Relations Heighten Economic Slowdown Risks
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: TOP FIVE GOODS IMPORTS IN 2017
TABLE: TOP FIVE GOODS EXPORTS IN 2017
Monetary Policy
CBR To Push Back Easing
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Fiscal Position To Improve Despite Political Risks
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES, 2017
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
RUB: Readjusting To A New Low
TABLE: BMI CURRENCY FORECAST
Chapter 2: 10-Year Forecast
The Russian Economy To 2027
Long-Term Economic Stagnation Without Reforms
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics I
Putin Victory: Tough Foreign Policy To Persist, With Only Limited Reforms
TABLE: POLITICAL OVERVIEW
Domestic Politics II
Putin May Extend Rule Beyond 2024: Four Scenarios
TABLE: SOVIET AND RUSSIAN LEADERS SINCE 1917
Long-Term Political Outlook
Putin Facing Far Greater Challenges Over 2017-2027
Chapter 4: Operational Risk
Operational Risk
TABLE: OPERATIONAL RISK
Business Crime
TABLE: BUSINESS RESPONSE TO WHITE COLLAR AND ORGANISED CRIME
Education
TABLE: RUSSIA AND OECD AVERAGE STUDENT PERFORMANCE SCORES, 2015
Chapter 5: BMI Global Macro Outlook
Signs Of Weakness, But Global Expansion Broadening
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: RUSSIA – MACROECONOMIC DATA & FORECASTS

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