Boston, MA -- (SBWIRE) -- 10/04/2013 -- Core Views

Although we do not see any immediate challenges to Russian President Vladimir Putin's third term in office, we anticipate growing public discontent with the lack of political freedoms and the slowing economy over the coming years. Meanwhile, the case of Aleksei Navalny has demonstrated that the potential for grassroots uprisings remains in place, despite the increasingly authoritarian measures taken by the Kremlin in recent years to suppress political opposition.

While we expect Russia's consumer story to remain attractive over the next few years, economic growth will be lacklustre as a result of deferred investment and too much government intervention in key sectors - energy, infrastructure and banking - and declining global oil prices.

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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 1.8% of GDP in 2013 and 2014, with the surplus to shift to deficit by 2017.

Although our 2013 forecast for the Russian economy was already below consensus, we see growing headwinds hampering economic growth beyond this year. As a result, after revising our 2014 growth forecast from 3.8% to 3.5% previously, we now expect growth to slow to 2.9%. For 2015, we have adjusted our forecast from 4.3% to 3.2%, which takes us well below consensus for both years.

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