Population 141.924 million
GDP 1953.555 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
| GDP growth (%) |
4.3 |
4.3 |
3.5 |
3 |
| Inflation (yearly average) (%) |
6.9 |
8.4 |
6.5 |
7 |
| Budget balance (% GDP) |
-3.5 |
1.6 |
-1 |
-0.8 |
| Current account balance (% GDP) |
4.7 |
5.3 |
3.1 |
0.8 |
| Public debt (% GDP) |
11.7 |
9.6 |
8.4 |
7.6 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Abundant natural resources (oil, natural gas, metals)
- Qualified labour force
- Low public debt and comfortable foreign exchange reserves
- Asserting its regional and energy power
WEAKNESSES
- Accentuation of the economy’s ‘rentier’ character
- Industrial sector’s lack of competitiveness
- Weak private banking sector
- Infrastructure weakness
- Shrinking population
- Persistent shortcomings in the business environment
Risk assessment
Growth slower but sustained by the price of crude
Growth slowed in 2012 and this trend is expected to continue in 2013. However, the Russian economy is standing up well in a depressed international economic context. Private consumption, the main driver of growth, will still be sustained by rising wages favoured by low unemployment, but it will be restrained by accelerating inflation and a less expansionary budget policy. Agricultural production was affected by the drought but should, together with the agro-food sector, remain buoyant (oils, dairy products). Industrial production is suffering from the fall in demand from Russia’s main partners (European Union, china). Automotives should, however, benefit from partnerships with European producers (Renault, Volkswagen). Investment will be curbed by lower business profits linked to rising production costs and increased selectiveness in the granting of loans. Oil exports are likely to continue benefitting from the maintenance of high prices, but the downward trend in the gas price will disadvantage the Russian economy. Inflationary pressure will increase due to higher food prices (over 40% of household spending) and the rise in public service tariffs (energy). The Central Bank’s (CBR) raised its refinancing rate in mid-September (to 8.5%) but this will not be enough to contain the rise in prices, which is expected to exceed the 6% “target”. New rate hikes in 2013 cannot be ruled out, but will be limited in order to check the impact on growth.
Fiscal and current account balances very dependent on oil prices
The fiscal balance is expected to remain slightly in deficit in 2013 due to the impact on oil revenues (50% of revenue) of the expected fall in production. Spending will still be targeted on defence, wages and pensions. A less favourable oil price development would further widen the deficit. However, Russian public finances remain sound with public debt below 20% of GDP, leaving the government a wide margin for manoeuvre, at least in the short term.
Russian exports are also largely dominated by oil and gas (2/3 of export revenues) and enable the country to post a current account surplus. But slower demand from eurozone countries, together with rising imports driven by household consumption, is leading to the erosion of this balance. The growth of foreign direct investment is hampered by an unfavourable business climate and the restrictions imposed in sectors described as “strategic”. Capital outflows, down compared with 2011, remained substantial in 2012 ($70bn) and are expected to continue in 2013 but at a slower pace, easing downward pressures on the rouble (subject to maintenance of the oil price). However, the exchange rate could become more volatile, with Russian Central Bank prioritising the fight against inflation over stabilisation of the rouble in preparation for the introduction of a new floating rate system in 2015.
A tense social and political situation and an unsatisfactory business environment
The young and the middle classes gathered in large numbers to protest against the 2011 legislative elections and the 2012 presidential elections and express their discontent with growing inequality and the persistent shortcomings in the business environment. But this opposition finds it difficult to express itself. The introduction, in 2012, of new laws limiting demonstrations (punished by fines) and the placing under surveillance of NGOs benefitting from foreign funding (USAID was compelled to halt its activities in Russia) are indicative of the difficulties. The economic situation enables the State to distribute social benefits, which limit demands, but middle class expectations remain high where fighting corruption and ensuring freedom of expression are concerned. If the implementation of the structural reforms promised by Vladimir Putin is delayed, the social climate could deteriorate.
The weakness of the legal framework and of that of property rights protection curbs investment. Governance suffers from a lack of transparency (particularly in terms of shareholdings). Corruption is widespread, leading to Russia being ranked 133rd (out of 176) according to the Transparency International’s Corruption Perceptions Index. Russia’s joining of the WTO in August could, however help to improve the business environment.
