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Russia Country Risk Report Q4 2018

Russia Country Risk Report Q4 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 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 will increasingly exploit opportunities to foster closer ties with eastern nations, amongst others China, Japan and even North Korea.Major Forecast Changes

Against an increase in inflationary risks, we now expect the Central Bank of Russia to keep its key rate on hold at 7.25% until end-2018, while we previously expect 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.


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
Weak Growth Outlook Threatens To Stir Social Discontent
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
Russia Prepares To Weather External Volatility
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
Higher Inflation Expectations Postpone Easing
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Eyeing A Budget Surplus In 2018
Russia Country Risk Q4 2018ContentsStructural Fiscal Position
TABLE: MAIN REVENUE & EXPENDITURE CATEGORIES, 2017
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
RUB: New US Sanctions Proposal Provides Limited Downside
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 I
Quick View: Pension Reform Raises Risks Of Social Unrest
TABLE: POLITICAL OVERVIEW
Domestic Politics II
Trump-Putin Summit: No Clear Path For Russia-West Rapprochement
TABLE: MAIN SOURCES OF DISPUTE BETWEEN RUSSIA AND UNITED STATES
TABLE: TIMELINE OF RUSSIA-WEST RELATIONS IN THE PUTIN ERA
Long-Term Political Outlook
Putin Facing Far Greater Challenges Over 2018-2027
Global Macro Outlook
Fewer Negative Surprises, But Trade Risks Rising
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
Risk Index Tables
TABLE: RUSSIA – MACROECONOMIC DATA & FORECASTS

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