Growth Model Under Pressure
BMI View: We continue to forecast a slowdown in Russian economic growth, which should arrive at 2.0% in 2013, down from 3.4% in 2012, with a slight acceleration to 2.5% expected in 2014.As households come under pressure from slowing credit growth and incomes, we are sceptical that investment is able to pick up the slack any time soon, hampered by the structural inefficiencies of the economy.
We have grown progressively bearish towards the Russian economy, as we believe the sharp economic slowdown year-to-date has come on the back of growing pressure on the country's economic growth model. Over the past decade, Russia's economy has been heavily dependent on rising state revenues from oil and commodity exports, which have trickled down to wages in the public sector and the broader economy. With our Oil & Gas team forecasting the price for oil to average below the break-even price for Russia of US$110/bbl (the price at which the budget is balanced) over the next few years, incomes are unlikely to grow at the pace seen over recent years.
Furthermore, even if oil prices exceed our forecasts, it would be hard to imagine oil price growth at a pace necessary to maintain the rise in real incomes from the past decade, in the context of stubbornly high inflation and slower lending growth we expect to see over the next two years. The diminishing windfall from oil and commodity prices will also 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 the economy to rebalance away from its commodity dependence and its consumption focus, and towards an investment-oriented economy.
|Low Growth Rates For The Foreseeable Future|
|Russia - Real GDP By Expenditure, Selected Components, % chg y-o-y|