Fast Market Research recommends "Russia Business Forecast Report Q1 2014" from Business Monitor International, now available
Boston, MA -- (SBWIRE) -- 12/20/2013 -- We see inflation arriving at 6.8% by end-2013, slightly above Central Bank of Russia's (CBR) inflation target of 5.0-6.0% for 2013, and at 5.8% in 2014, a slight downward revision from our previous 2014 forecast of 6.0%. The hawkish rhetoric of the new leadership at the CBR in our view is a demonstration of their political independence, while the rate cut we expected to see over H213, is now likely to take place in H114.
We continue to forecast a slowdown in Russian economic growth, which should arrive at 2.0% in 2013, down from 3.4% in 2012, with a slight acceleration to 2.5% expected in 2014. As households come under pressure from slowing credit growth and incomes, we are sceptical that investment is able to pick up the slack any time soon, hampered by the structural inefficiencies of the economy.
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The precarious security situation in the North Caucasus poses a major challenge for the Russian authorities, who are at risk of losing control of this vital region. The Kremlin has few good options, and will most likely maintain a combination of repression and federal subsidies, but tough security policies will create a backlash that could undermine its position further.
Major Forecast changes
The rapid decline in Russia's current account surplus in 2012 signals that the erosion of export competitiveness is occurring faster than we had expected, hence our decision to revise down current account surplus forecasts. We now expect a surplus of just 2.7% and 1.9% of GDP in 2013 and 2014, with the surplus to shift to deficit by 2017.
Key risks to outlook
Unless we see strong moves towards liberalisation of the economy, we remain sceptical that Russia can change its current consumption-centred commodity-dependent growth model into an investment-oriented one. The diminishing windfall from oil and commodity prices will put into sharper relief the structural impediments to investment, such as corruption, grossly inefficient bureaucracy, poor property rights and questionable independence of the judiciary among others.
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