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Russian Economy Monthly November; financial crisis déjà vu


This morning we have published Russian Economy Monthly November; financial crisis déjà vu. Excerpts from the front page are given below.

Autumn did not bring respite for the Russian economy with the external environment refreshing memories of the ’08–09 crisis when the country was also facing a double whammy of credit and terms of trade shock.

Less exposed. Flexible FX regime and lack of major FX asset/liability mismatches is the main difference today, which argues for a milder impact on the real economy.

Far from immune. Terms of trade shock will spread through different channels with the negative wealth effect taking the lead, while budget consolidation is set to follow later in 2016–17, and its composition could potentially define structural priorities for the years ahead.

Growth rebalancing… Helped by the weaker RUB — we revise our USDRUB forecast to 43 next year — growth rebalancing away from domestic demand to net export should strengthen.

…no escape from recession. But, import substitution can only partly offset deep cutbacks in consumption (-3.0%) and private investments. Fiscal stimulus and state-led infrastructure projects will likely also cushion the impact, but mild recession (-1.0%) is hard to escape.

Domestic credit contraction is the main risk. The question remains open as to what extent the CBR will be able to avoid over-tightening and consequent outright domestic credit contraction, which presents the main cyclical downside risk for 2015 in our view.

Vladimir Kolychev
VTB Capital analyst


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