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Report Published: "Russia Business Forecast Report Q2 2014"

Recently published research from Business Monitor International, "Russia Business Forecast Report Q2 2014", is now available at Fast Market Research

 
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Boston, MA -- (SBWIRE) -- 03/27/2014 -- We expect inflation to end 2014 at 5.4%, slightly above the Central Bank of Russia (CBR)'s inflation target of 5.0% for 2014, and to average 5.1% in 2015, mainly driven by the government-mandated utility price freeze in 2014-2015. Abating inflation will allow the CBR to cut its main policy rate, from 5.50% at the time of writing to 5.25% in 2014, in a bid to shore up the flagging

We forecast the Russian economy to grow by a modest 1.9% in 2014 and 2.1% in 2015, as the main driver of growth over the past decade - household consumption - continues to weaken. At the same time, the demand-side measures taken by the government to boost investment will do little to address the supply-side factors weighing on investment, further reinforcing our expectations for subdued growth for the foreseeable future.

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; however, tough security policies will create a backlash that could undermine its position further.

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Major Forecast Changes

While we have long maintained a bearish view on the Russian rouble, its recent rapid depreciation has led us to further revise our already downbeat outlook. As such, we have recently adjusted our 2014-2015 outlook for the currency, and now we expect the rouble to average RUB35.20/US$ in 2014, from a previous forecast of RUB33.16/US$, and RUB35.55/US$ in 2015, from a previous forecast of RUB34.10/ US$.

Key Risks To Outlook

Unless we see strong moves towards liberalisation of the economy, we remain sceptical that Russia can change its current consumptioncentred commodity-dependent growth model into an investmentoriented 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. These will make it difficult for investment to pick up the slack from falling state revenues, which in the past decade of high oil prices have bolstered rising incomes and living standards.

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