Russia is now 112th (out of 185), mainly thanks to taxation improvements this year.
GDP growth might have shrunk to 2.8% YoY in 3Q12, with harvest issues, decelerating internal demand and cooling lending being the main drivers. We expect Russia’s economy to slow, and see downside risks to our FY12 forecast of 3.5% GDP growth.
Households recently started to save more, which actively drags spending expansion.
IP growth reflects stronger external demand in September. However, slowing internal demand resulted in manufacturing growth falling to its second lowest level since October 2009.
In 3Q12, the BoP printed a lower CA surplus and modest capital outflow. In 4Q12, we might see a further reduction in the CA balance on the back of lower oil prices and unfavourable seasonality. We therefore believe that the rouble is set to remain under pressure.
Fiscal factors might pose a risk to growth. Budget expenditures increased in September, but just offset a weak August reading. Given that the growth in outlays is to be close to 0% for 4Q12, fiscal policy might negatively affect internal demand growth.