カントリーリスク評価
Russian Federation

Russian Federation

Population 146.3 million
GDP 12,718 US$
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Synthesis

major macro economic indicators

  2013  2014  2015 2016 (f)
GDP growth (%) 1.3 0.7 -3.7 -1.0
Inflation (yearly average) (%) 6.5 11.0 15.0 8.4
Budget balance (% GDP) -1.3 -1.2 -3.0 -3.8
Current account balance (% GDP) 1.6 2.3 5.0 5.0
Public debt (% GDP) 13.1 16.3 17.7 18.4

 

(e) Estimate (f) Forecast

STRENGTHS

  • Abundant natural resources (oil, gas and metals)
  • Skilled labour force
  • Low public debt and comfortable foreign exchange reserves
  • Assertion of regional and energy power

WEAKNESSES

  • Increased rentier nature of the economy
  • Lack of competitiveness of the industrial sector
  • Weak private banking sector
  • Weak infrastructures
  • Declining demography
  • Persistent deficiencies in the business climate

RISK ASSESSMENT

Economy to shrink again in 2016

The recession in Russia is expected to continue but will be less severe in 2016. Growth decreased by 1.2% in the first quarter 2016 and 0.6% in the second (year on year). Private consumption, the main growth driver, is likely to remain constrained by a slower increase than in the past of nominal revenues, a relatively restrictive fiscal policy and the preference of households, noted at the beginning of the year, for deleveraging instead of consuming. Investment will remain limited by the lack of business owners' confidence, high interest rates (10% in September 2016), as well as by ongoing restrictions on financing in foreign currency imposed as part of western sanctions, extended for six months (to the end of January 2017). Budget constraints will limit the support for public investment. Spending increase in the hydrocarbon sector and defence may slow down.
Inflation could slow, mainly due to the strengthening of the ruble, but the consequences of the embargo placed on the purchase of certain products in Europe and Turkey, extended to the end of 2017, may keep the prices of imported goods, especially food, relatively high.

 

Worsening fiscal and current account balance

The fiscal deficit is expected to slightly deepen in 2016. Low oil prices are likely to continue to put pressure on hydrocarbon revenues (50% of total), while weak activity will curtail non-oil revenues. The draft 2016 budget, based on an oil price of $ 50/barrel, includes a slow increase in pensions (4%) and a freeze on public sector wages, with a view to limiting the deterioration in the public finances and State indebtedness. The defence budget is, nonetheless, likely to continue to rise moderately. However, the State has comfortable foreign exchange reserves to cover this thanks to (reserve and sovereign) funds already called on in 2015, but still totalling almost USD 105 billion (9% of GDP) in August 2016. The government launched early July 2016 the privatisation program with the sale of 11% in the diamond company Alrosa but suspended the sale of participation of the oil producer Bashneft and the shipping company Sovcomflot on September 2016...
The current account surplus is expected to stabilise in 2016. Exports, largely dominated by hydrocarbons (2/3 of revenues), are likely to remain constrained by low export prices. The weak competitiveness of Russian products could, moreover, limit non-oil exports, despite the fall of the rouble. However, depressed domestic demand, the maintenance of sanctions and embargos on certain European and Turkish products, should keep imports in check. FDIs are not likely to rebound in the absence of a real improvement in the situation in Ukraine and in governance.

The stubbornly low oil price (to which the rouble exchange rate is strongly correlated) and due dates for external debt repayments (about USD 47 billion in the second half of 2016), are expected to maintain downward pressure on the rouble, the volatility of which has increased since the introduction of a floating exchange rate regime since the end of 2014. Russia's external debt (90% bank and business debt) is sharply lower (-20% between end 2014 and end 2015) and the high level of foreign exchange reserves (about 12 months of imports in August 2016) limits the risks of default, without ruling this out for some businesses and/or banks.
The banking sector's solvency and liquidity risk has increased significantly as a result of the worsening quality of the portfolio in a context not only of an economic crisis, but also the high cost of financing associated with the international sanctions which stop the major banks from accessing the financial markets.

 

A political situation expected to remain stable and persistent shortcomings in the business environment

Vladimir Putin's popularity nationally increased with the Russian intervention in Crimea in March 2014. There is however, discontent within the population and the tensions could rise further in a context of economic downturn. The regime's increasingly tough stance reflected, notably, in the State's increased control of the media and the Internet, nonetheless significantly limits opposition movements’ ability to organise and express themselves. The parliamentary elections held in September 2016 confirmed the dominance of the presidential party, United Russia (54% of the votes) but with a weak turnout (48% down from 60% in 2011).
Shortcomings relating to the protection of property rights, weak governance and lack of corporate transparency significantly weaken the business environment. Despite some progress, Russia is ranked 168th (out of 215) on the World Bank's governance indicator, the corruption perceptions index, which is a recurrent weakness.

 

Last update: September 2016 

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