This report provides an overview of Russia’s economic and banking sector overview through February 2014. The report includes discussion of recent political turmoil in Ukraine and the effect it has on Russian economy. The Central Banks’ economic forecasts, monetary policy, as well as extensive description of banking system developments in 2013.
In its latest monetary and credit policy report the Central Bank of Russia (CBR) revised the GDP growth forecast for 2014 from previous 2% to 1.5%-1.8%. This estimate also includes a 0.3ppt estimated positive effect from Sochi 2014 Winter Olympics. The growth forecast for 2015-2016 was also cut from previous 2.5%-3% to 1.7%-2%.The stagnation in the economy continues, but it is expected to be over in Q2/14-Q3/14. EconMin hopes that starting in Q2 the dynamics will turn around in such segments as machinery manufacturing and food processing. GDP growth in Q1/14 is forecasted at 1%. The CBR did not yet revised its 5% inflation target for 2014.
The crisis in Ukraine has raised the risks to Russia's already weakening economy presented by currency depreciation and capital flight, Fitch Ratings says. The situation is still highly unpredictable but Russia's sovereign credit profile is robust and events so far do not have implications for the country's 'BBB' rating, Fitch Ratings informed.
The rouble has now fallen around 9% against the dollar this year, partly driven by fears across emerging markets about the impact of US tapering, but also on Russia-specific concerns about low growth and the weakening current account surplus, and in anticipation of further liberalisation of the exchange rate regime, Fitch points out.
Russia's already strong sovereign balance sheet is characterised by low sovereign debt levels and high international reserves (around USD490bn in late February). Sovereign net foreign assets equivalent to 23% of GDP provide an ample buffer against external shocks, supporting the rating. These are sufficient to cover gross external financing needs more than three times over. The Reserve Fund, the government's main fiscal buffer, contains USD87bn (4.5% of GDP), giving Russia a cushion against a drop in demand for its sovereign debt.
GDP growth in January seen at 0.7% y/y, EconMin sees GDP growth in 2014 below 2%
Fitch and Moody’s believe crisis in Ukraine to have negative effect on Russian Economy
The international reserves of Russia decline by 6% y/y in February
CBR raises main interest rate as RUB drops due to military involvement in Ukraine
Capital outflow from Russia grows by 15% to USD 62.7bn in 2013.
International rating agencies maintain the negative outlook on Russian banking sector
Actual real sector crediting growth in Russian banking sector slows down from 14%-15% seen in the beginning of the year to 12.7% y/y for 2013 overall vs. expectations of 15% growth by the Central Bank of Russia (CBR).
The consolidation of the banking sector to continue in 2014-2015, as slowing economic growth limits the scope of organic growth
Moody’s welcomes Russian banking sector’s consolidation, Fitch notes that Russian banks significantly exposed in Ukraine