Russia is by far the largest country in Emerging Europe. Its economy has become increasingly dependent on hydrocarbons exports in recent years, leaving it vulnerable to shocks in the global economy. After a decade of political stability and economic prosperity in the 2000s, Russia is entering a more turbulent period that could distract policymakers from tackling the country's immense structural challenges.

At BMI, we ensure our clients make sound business decisions in Russia, using our risk-assessed total analysis model. Our research teams keep our clients informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. Our expert views are supported by our interactive data and forecasting. We also provide in-depth analysis on 24 of Russia’s most important industries. Our analysts will make sure you, as our client, are always ahead of the curve in Russia.

Country Risk

Russia Country Risk

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Core Views

  • President Vladimir Putin's popularity remains near record highs, although we expect this to moderate as economic hardship continues to to be realised by the general public. Despite the deterioration in living standards, we do not expect any mass uprising in response to the deteriorating economy.

  • Persistently low oil prices, fiscal austerity, weak investment growth and declining real incomes will lead to second consecutive real GDP contraction of 1.2% in 2016, followed by only a modest recovery to 1.5% growth in 2017.

  • Russia's long-term growth potential is subdued, closer to that of mature developed economies rather than a higher growth emerging market. This is due to the highly centralised nature of the economic model and large government footprint in key sectors, reliance on energy exports, poor business...

Russia Operational Risk Coverage (9)

Russia Operational Risk

BMI View:

BMI View: A downturn in its economy and cool relations with the West are the key risks that are damaging Russia's attractiveness to investors and severely undermining its business environment. In particular, the collapse of global oil prices and the imposition of Western sanctions have hindered trade and economic growth while involvement in the Ukraine and Syria conflicts has heightened security risks and further dampened investor sentiment. These recent developments add to structural issues including limited economic reforms, weak infrastructure, and...

Russia Crime & Security

BMI View:

BMI View: Russia's security environment has deteriorated as the government has pursued an increasingly assertive foreign policy agenda, which has resulted in involvement in conflicts in Ukraine and Syria. While these actions do not pose a direct threat to business interests in Russia, they have heightened the risk that the country will be dragged into a wider conflict or subject to retaliatory terrorist attacks. In addition, businesses face considerable risks from criminal gangs, which have exacerbated issues with corruption and other financial crimes. Cybercrime is another concern, as Russia is an active cyber power and businesses may be targeted or suffer from collateral damage as part of cyber conflicts. These myriad risks have significantly raised security costs for companies in Russia, and undermined the appeal of the country's operating environment. Consequently, Russia scores 43.0 out of 100 in the...

Russia Labour Market

BMI View:

BMI View: Russia's very large and highly skilled urban labour force is a significant incentive for investors from a range of different sectors. The country's good educational standards and strong enrolment rates from pre-primary through to tertiary level ensure that investors can expect a high level of literacy and numeracy across the country. That said, health risks are high in Russia, raising the possibility of lengthy absenteeism and incurring significant costs for employers. For these reasons, the country scores 63.0 out of 100 for Labour Market risks, putting it in third place...

Russia Logistics

BMI View:

BMI View: Russia's logistics sector is well developed and caters for the needs of the country. Its focus on commodities has gradually shifted toward also catering for the logistics demands of the country's growing consumer base. This sector is not, however, without its risks, the most pertinent being the drop in infrastructure investment due to the downturn in the Russian economy. This investment is much needed to ensure the modernisation of Russia's utilities and transport network and protect against the growing threat to investors from shortages and congestion. Russia scores above the global average in the BMI ...

Russia Trade & Investment

BMI View:

BMI View: As one of the largest emerging markets globally, investment opportunities in Russia are potentially lucrative, but we caution that the trade and investment climate remains fraught with risk. The government continues to impose restrictions on trade flows and limits on foreign direct investment (FDI) in certain sectors, while state-owned institutions are prevalent in all areas of the economy. Corruption is also rampant and the judiciary is weak and subject to political interference, which undermines trust in the legal system. Furthermore, the overall tax burden is considerable and some bureaucratic procedures remain plagued by delays. Western sanctions imposed against Russian economic targets in response to the Ukraine crisis have disrupted trade flows, restricted access to financing and inhibited growth. Although business-friendly reforms are driving some improvements in the operating environment, Russia will...

Russia Industry Coverage (31)


Russia Agribusiness

BMI View:

BMI View: Russia's poultry and pork sectors will perform strongly as consumer demand is growing and domestic production is looking to bridge the gap left by EU imports, which will not resume until H216. Wheat will outperform the grains complex out to 2020 due to elevated farmgate prices in rouble terms and strong opportunities on the domestic and export markets, which will maintain production incentives. The Russian dairy sector will benefit from growth momentum until 2017 due to the EU embargo. In particular, cheese production will see solid gains in a...


Russia Autos

BMI View:

BMI View: Elevated exchange rates will continue to encourage import substitution which will allow domestic production to recover faster than domestic sales.

Passenger Car and Light Commercial Vehicle Sales
e/f = BMI estimate/forecast. Source: AEB, BMI
Key Views
* Falling real wages, due to decreasing gross wages, and working hours alongside high inflation will all weigh on consumer purchasing power and...

Commercial Banking

Russia Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

Consumer Electronics

Russia Consumer Electronics

BMI View:

BMI View: Russian consumer electronics device spending collapsed in 2015 as the economic crisis resulted in a sharp decline in consumer sentiment - and device affordability due to extensive rouble depreciation that eroded consumer purchasing power. The market is expected to contract again in 2016 as economic conditions continue to be hostile, but there will be some let-up from the depths of the crisis in 2015. After this sharp downturn there is pent-up device demand across the market, but we have adopted a cautious outlook for a rebound over the medium term based on the weak household income outlook, while uncertainty around Russian international relations holds the prospect for further disruption. There is some upside potential to offset this, if the government can kick start the expansion of domestic electronics manufacturing, including components, that would go some way...

Defence & Security

Russia Defence & Security

BMI View:

BMI View: Russian defence spending will increase by 2% in 2016 amid declining international oil prices. New procurement will be driven by the need to control the country's borders, the fight against internal terrorism, the ongoing involvement in Ukraine and the Syrian civil war, and the need to modernise the armed forces. Moscow also continues to see the expansion of the EU and NATO close to its Western borders as a...

Food & Drink

Russia Food & Drink

BMI View:

BMI View: Key economic indicators showed little signs of improvement in August 2015. Households will continue to struggle in coming months, while business investment will not pick up until interest rates and demand conditions improve. While Russia's food, drink and mass grocery retail sectors have undoubted potential in the longer term, headwinds will undermine any short-term opportunities.

Headline Industry Data

  • 2015 per capita food consumption (local currency) = +7.7%; forecast compound annual growth rate (CAGR), 2014 to 2019 = +7.4%.

  • 2015 beer volume sales = -6.0%; forecast CAGR to 2019 = 0.4%.

  • 2015 mass grocery retail sales (local currency) = +16.2%; forecast CAGR to 2019 = +16.5%.

Freight Transport

Russia Freight Transport

BMI View:

BMI View: The difficulties Russia is facing in modernizing its transport system will impact the dynamics in the freight market over our forecast period until 2020. Both road and rail infrastructure need substantial investment to realize its transit potential, however the tight fiscal situation in Russia and Western sanctions will limit the Russian government's capacity to fund infrastructure projects. Sanctions prohibit the European Bank for Reconstruction and Development to lend money to Russia and thereby hindering Russia's capability to finance infrastructure projects.

Persistently low oil prices, weak investment growth and declining real incomes will prevent a swift recovery in the Russian economy in 2016. Russia will maintain a current account surplus in 2016 and 2017 as imports...

Information Technology

Russia Information Technology

BMI View:

BMI View: Russian IT spending collapsed in 2015 as the economy turned downwards, with sharp rouble depreciation rapidly reducing the affordability of imported devices and solutions. The outlook is for a further, albeit slower, contraction in IT spending in 2016 as economic conditions remain challenging - before a recovery from 2017. We are however cautious about the recovery, despite the pent-up demand across the market after deferred spending in 2015-16, as we envisage little of the erosion of purchasing power to be recaptured by 2020. Russia's international relations and policy umbrella for the ICT sector generates additional uncertainty, for instance through data localisation and technological independence initiatives, though these policies are creating pockets of opportunity within the market that vendors could tap with targeted strategies. For total IT spending, we envisage a CAGR of 7.1% over 2016-2020 to a...


Russia Infrastructure

BMI View:

BMI View: International sanctions that are weakening the economy, coupled with low oil prices, underline our bearish outlook over the Russian construction sector. We currently forecast Russia's construction industry to contract by 1.8% in real terms in 2016 - a mild improvement compared to the deep 6.7% contraction of 2015 - as a result of low base effects and the adjustment of the economy to the new oil price environment.

Latest Updates And Structural Trends

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Russia Insurance

BMI View:

BMI View: In the short term, Russia's insurance industry faces significant challenges from the weak domestic economy and currency movements, which means we expect to see sharp double-digit contractions in both life and non-life gross premiums written in 2015. While we do expect to see a return to growth in 2016, this is predicated upon a return to more positive economic territory - any further escalation in regional tensions or more extensive sanctions could derail this growth potential. Underneath these challenges, Russia's long-term growth potential is substantial...

Medical Devices

Russia Medical Devices

BMI View:

BMI Industry View: We expect the Russian medical device market to contract by a 2009-2014 CAGR of 3.4% in US dollar terms, due to the continued depreciation of the Russian rouble over the forecast period. The financial sanctions imposed by the West due to Russia's involvement in the Ukraine crisis, together with the weakened currency caused by falling oil prices and high inflation, which is reducing consumer purchasing power, are having a negative impact on...


Russia Metals

BMI View:

BMI View: We have increased our 2016 tin price forecast to USD16,500/tonne owing to a stabilisation in the Chinese economy over Q116 that has boosted all industrial metal prices significantly over January-April. While we expect consolidation over the remainder of 2016, tin prices will continue to recover beyond 2016 as the global market posts sustained market deficits and inventories dwindle.

Global - Tin Supply, Demand & Price Forecasts
2014 2015e 2016f ...

Russia Metals

BMI View:

BMI view: We have revised our aluminium price forecast from USD1,575/tonne to USD1,600/tonne in 2016, as the tightening market provided an earlier than expected floor in Q116. Aluminium prices will gradually edge higher as the global market moves into a deficit by 2018.

Global - Aluminium Supply, Demand & Price Forecasts
2014 2015e 2016f 2017f

Russia Metals

BMI View:

BMI View: Despite the strong H116 iron ore price rally, prices will edge lower due to weakening Chinese consumption over the latter half of 2016. From 2017 onwards, iron ore prices will remain subdued as iron ore prices remain under pressure from an over-supplied seaborne market, driven by strong production growth in Australia and Brazil, and weak consumption growth in China.

Global - Iron Ore Production Forecasts
2013 2014 2015e 2016f

Russia Metals

BMI View:

BMI View: Nickel prices will bottom in 2016 as weak production drags the global market into deficit. For instance, we expect Chinese imports of nickel to grow over the coming quarters. Prices will begin 2016 weaker than we had previously expected and we have thus revised down our 2016 average price forecast to USD9,000/tonne from USD10,500/tonne.

Global Nickel Forecasts
2013 2014 2015e

Russia Metals

BMI View:

BMI View: We have revised down our average copper price forecast for 2016 to USD4,900/tonne. We expect prices to find a floor over the first half of 2016, and begin to stabilise thereafter, supported by production cuts and modest consumption growth.

Global - Copper Supply, Demand & Price Forecasts
2014 2015e 2016f 2017f 2018f ...

Russia Metals

BMI View:

BMI View: We have raised our gold price forecast for 2016 to USD1,275/oz and have a new five-year price target of USD1,400/oz. We have turned more positive towards prices due to rising inflation pressures and our view that real rates will remain depressed in developed markets beyond 2016. A modest rise in prices will be insufficient to reverse the trend of weak mine investment and industry consolidation.

BMI Gold Forecasts
2014 2015 2016f ...

Russia Metals

BMI View:

BMI View: Global steel prices will remain subdued due to a persistent steel oversupply over the coming quarters. From 2017 onwards, steel prices will gradually edge higher as the global steel surplus will narrow due to Chinese supply moderation.

Steel Price Forecast
2014 2015 2016f 2017f 2018f 2019f...

Russia Metals

BMI View:

BMI View: We maintain our average zinc price forecast for 2016 of USD1,750/tonne. We expect zinc prices to reach a floor over the first half of 2016, and begin to stabilise thereafter, as production cuts shift the market to a deficit.

Global - Zinc Supply, Demand & Price Forecasts
2014 2015e 2016f 2017f 2018f

Russia Metals

BMI View:

BMI View: Lead prices will gradually edge higher as the global lead market will shift into deficit by 2017 as production growth will slow over the coming years.

BMI Lead Price Forecast
Current* 2016f 2017f 2018f 2019f 2020f


Russia Mining

BMI View:

BMI View: Russia's gold and coal production growth will be the sector's relative bright spots, while PGM's and iron ore output growth will grind to a halt. Low metal prices, the country's inadequate infrastructure and Western sanctions will continue to limit the sector's production growth.

Russia Mining Industry Value

Oil & Gas

Russia Oil & Gas

BMI View:

BMI View: Oil production continues to outperform as a weak rouble allows for maintained capex and lower operating costs. Gas production, which underperformed in 2015, will improve as domestic and foreign demand pick up.

Headline Forecasts (Russia 2014-2020)
2014 2015e 2016f 2017f


Russia Petrochemicals

BMI View:

The Russian petrochemicals industry saw robust output growth as a result of the depreciation of the rouble and the decline in naphtha feedstock costs. However, growth will come under pressure in 2016 due to a sluggish recovery in domestic end-markets.

Basic chemicals production rose 6.3% year-on-year (y-o-y) in 2015 with all segments witnessing increases. According to the Federal State Statistics Service of the Russian Federation, production of ethylene exceeded 2.79mn tonnes, up 16.4% y-o-y. However, Russia's petrochemicals sector also suffers from structural inefficiencies which have deterred investment, particularly in the country's oriented production. Challenges include the country's manufacturing sector, which is not competitive without the presence of government incentives. Importantly, we do not expect such hurdles to be cleared in the short-to-medium term,...

Pharmaceuticals & Healthcare

Russia Pharmaceuticals & Healthcare

BMI View:

BMI View: Russia's healthcare market is in a precarious position due to a severe lack of funding and an escalating burden of disease. The country's economic recession will see further pressure placed on the population for provision of care. Amendments to Russia's pharmaceutical legislation will, however, favour domestically-produced medicines over foreign drugmakers and multinational drugmakers will be pressured to establish a domestic manufacturing presence to comply to related new regulations. Nonetheless, given its sheer market size and unmet potential, the country will remain attractive for investment by multinational pharmaceutical firms for long-term growth.

Headline Expenditure Projections

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Russia Power

BMI View:

BMI View: A weak economic outlook, a weakened rouble and tight credit conditions in Russia will continue to halt utility investments in new domestic power capacity. In addition, a sustained period of contraction in the manufacturing sector will curb growth in electricity consumption. Diversifying energy export markets away from the West will see opportunites opening up towards China and Saudi Arabia, among others.

Headline Power Forecasts (Russia 2013-2019)
2013e 2014e 2015f ...

Real Estate

Russia Real Estate

BMI View:

BMI View: Rental rates and occupancy levels are both expected fall over the course of 2016, following a poor performance in 2015. We expect demand from foreign players to remain low and barriers to entry to remain high. The main catalysts for the downward trend across most of the real estate market are the weak economy and trade sanctions. Weak GDP figures and falling income levels are restricting consumer spending, and reducing the attractiveness of the Russian market to new players. We do not forecast a major turn-around over the course of our forecast period to 2020.

We expect only a modest recovery in GDP in 2016 as consumers remain under pressure, from both the sharp depreciation in the rouble and elevated inflation. Declining fiscal revenues mean the government will struggle to prop up the economy and we do not expect government consumption to be a significant driver of growth. We...


Russia Renewables

BMI View:

BMI View: High financing costs, currency volatility and increasingly continuing local content requirements (LCR) mean that growth in Russia's non-hydropower renewables segment will be limited over our 10-year forecast period. While the most recent tender provided another 365MW of projects, we expect these ongoing economic issues to result in the sector attracting limited investment, as investors will look elsewhere to grow their businesses, and likely project delays. The 2015 easing of wind project LCR still needs to show its positive effects on the market.

Considering the adverse impact of sanctions on the availability of international funding, coupled with mounting pressures on the government to cut costs as foreign exchange reserves are tapped to cover fiscal deficits, an expensive renewables segment will face a tough environment in the...


Russia Retail

BMI View:

BMI View: Low oil prices will keep the economy in recession in 2016, while elevated inflation, currency weakness and government budget cuts will further erode household spending power. We forecast another difficult year for the retailers, with the total industry value contracting by double-digit figures for the second year in a row.

Headline Household Spending
e/f = BMI estimate/forecast. Source: Rosstat, BMI

Key Views And Developments

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Russia Telecommunications

BMI View:

BMI View: The Russian mobile market rebounded in the last six months prior to September 2015, following declines relating to MTS cleaning-up its base off inactive users, and the tie-up between Tele2 and Rostelecom. With a penetration rate of 173.8%, we still think inactivity is an issue, as many users seem to have added a new SIM card while moving to 3/4G. The success of data services has been positive for operators, but this has come at great costs, with the overall economic environment at home and abroad leading some to consider tower outsourcing to reduce costs and focus more specifically on services.

Key Data

  • The Russian mobile market has rebounded in Q2 and Q315, finishing September 2015 with 249.3mn subscribers and a penetration rate of 173.8%

  • For the first time in Q315, Rostelecom had more fibre...


Russia Tourism

BMI View:

BMI View: We expect the weaker rouble to bring back an increase in the number of tourism arrivals to Russia in 2016. Europe will remain the main market, owing to proximity, but the Asia Pacific will also rise as a regional source market as a result of increasing relations between Russia and China. The weak economy, however, will hamper these positive developments from having significant repercussions on the development of infrastructure (still hindered by issues related to EU economic sanctions) and international tourism receipts, the value of which will continue to fall due to economic circumstances. We expect the 2018 World Cup to provide new opportunities, however, for Chinese businessmen wishing to invest in Russia, unhindered by visa issues or economic sanctions.

Key Forecasts (Russia 2012-2019)...


Russia Water

BMI View:

BMI View: Overall we believe the Russian water and sanitation sectors are showing steady improvement in the quality of the service offering; however, the high costs and limited revenues, in conjunction with poor infrastructure in many regions, will continue to render them an unappealing investment option.

Falling private investment, stubbornly high inflation and slowing economic growth support our overall bearish outlook for Russia's water infrastructure industry, in spite of much needed modernisation, replacements and expansions of existing facilities and networks - much of which is likely to be shelved given the current economic climate. However, one bright spot is the Russian focus on developments in Crimea; key among these are water infrastructure developments for supply, distribution and...

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