Persistent structural and cyclical headwinds in the face of constrained policy room suggest that the Russian economy will continue to cruise dangerously close to stall speed through 2014.
Fiscal diet is still on the menu. Budget consolidation was the main drag on growth in 2013, but the peak of the fiscal austerity effort is to fall on next year. Some relief might come late in 2014 through backdoor easing schemes.
SOEs to join the austerity party. Just as fiscal consolidation is enforced by the new Fiscal Rule, the new tariff policy institutionalises budgetary constraint for natural monopolies.
Implementation might be disruptive for short-term growth but it is a pain that is needed in order to reap sizable efficiency gains in the future.
Private sector reluctant to pick up the slack. Structural reforms to boost competitiveness hold the key to sustainable growth in the private sector. The progress on this front looks somewhat mixed, as lower administrative barriers contrast with rising policy uncertainty.
The CBR is set to reach 2016 inflation target. Shock to food prices in late 2013 delayed both headline disinflation and policy easing. As the impact from the supply shock fades, disinflation will reinforce itself quickly: we expect headline CPI to drop to 3.9% by YE14. The CBR is to react with rate cuts, but not before late 2Q14.