Russia

RGE's Q1 2010 Russia Outlook

After a double digit real GDP contraction in H1 2009, the worst among the major emerging market economies, Russian output has stabilized, growing very modestly in H2 2009. RGE expects that growth in 2010 will be between 3.5-4%, well below 2003-08 levels, as private consumption remains weak and exports rather than domestic demand become the main driver. Despite support from higher oil prices and production, which facilitates fiscal stimulus and a revival in inflows, financial vulnerabilities and weaker consumption overpower the restocking trend. On the more positive side, these trends will restrain inflationary pressures.

The Russian economy stabilized in H2 2009 at a low level as external demand improved. The improvement in H2 notwithstanding, the Russian economy shrank by almost 8% in 2009, much worse than in the Russian financial crisis. The increase in poverty, the shrinking middle class and tight credit suggest that domestic consumption, the growth driver in the boom years, will be slow to recover. A sluggish global economic recovery, outstanding debt and structural vulnerabilities, will keep Russian growth below trend (6%) even in 2011.

Read the Q1 2010 Russia Outlook.