MARKETBEAT

RUSSIA

ECONOMIC SNAPSHOT
A Cushman & Wakefield Research Publication

Q3 2012

STRONG GROWTH CONTINUES

Growth slowed modestly in the first half of the year, although it remained above trend. The recent PMI surveys point at only a marginal loss of momentum of the private business sector in Q3. Given the economys resilience to the ongoing euro zone crisis, the authorities focused on fighting persistently high inflation by raising interest rates in September. More monetary tightening is expected to follow.

MARKET OUTLOOK
GDP: Inflation: Interest rate: Employment: Slower but healthy growth ahead. A substantial increase over H2. Moderation unlikely in the short term. Hikes are likely to continue as inflationary concerns come to the fore. Stable but may rise at the start of next year.

ECONOMIC SUMMARY
ECONOMIC INDICATORS* GDP growth Consumer spending Industrial production Investment Unemployment rate (%) Inflation Rouble/ (average) Rouble/US$ (average) Interest rates 3-month (%) Interest rates 10-year (%) 2009 -7.8 -5.1 -9.3 -14.4 8.4 11.6 45.3 31.8 7.1 8.0 2010 4.3 5.1 8.2 5.8 7.5 6.8 41.2 30.4 4.1 7.4 2011 4.3 6.7 4.8 8.0 6.6 8.4 41.9 29.4 7.2 8.5 2012F 3.8 5.4 3.6 6.7 5.7 6.6 40.9 31.2 7.2 7.6 2013F 3.7 4.6 4.0 7.2 5.6 5.9 39.1 30.8 7.9 7.9

ROBUST CONSUMPTION
Consumers have continued to generate most of the growth recorded in recent months. Unemployment fell further in August, after reaching the pre-crisis level in April, and now stands at just 5.2%. The subsequent wage growth and rapid expansion of credit to households continued in the summer, with personal roubledenominated loans up by 48% y/y in June and wages up by 7.8% y/y in August. Inflation remains the main threat to sustainability of the current level of consumption and is already affecting retail sales, which averaged 4.7% in July and August, compared to around 7% in H1. Inflation has risen on the back of the hikes in utility prices and a disappointing harvest (which elevated the prices of food). CPI is unlikely to fall in line with the 6% target for 2012, despite the start of monetary tightening. Impending fiscal cuts and planned creation of a reserve fund to accumulate profits from oil and thus to reduce the countrys dependency on this resource are likely to place more pressure on consumers.

NOTE: *annual % growth rate unless otherwise indicated. E estimate F forecast Source: Oxford Economics Ltd. and Consensus Economics Inc

ECONOMIC & POLITICAL BREAKDOWN

Population GDP Public sector balance Parliament President Prime Minister Election dates 142.9 million (2010) US$1,856.1 billion (2011) 2.1% of GDP (2011) The Medvedev-led United Russia party with majority of seats in the Duma Vladimir Putin Dmitry Medvedev December 2016 (Parliamentary) 2018 (Presidential)

WTO
Russia officially joined the WTO as the last of BRICs. The accession is expected to help use the countrys solid domestic market as a base for turning its manufacturers into exporters and thus to reduce its reliance on energy and minerals. Being inside this global trade club is also believed to have scope for improving the perception of Russia as an investment market. Thus far, Russia has received less FDI than other emerging markets, with the majority of inward investment aimed at getting around the countrys tariff system and its customs-clearance procedures, rather than at including Russia in the global supply chain.

ECONOMIC ACTIVITY
10.0 5.0 0.0 -5.0 -10.0 2001 2003 2005 2007 2009 2011 2013 F 15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0

OUTLOOK
Robust domestic demand is expected to ensure sustained growth this year while impending increases in oil prices should offset planned fiscal tightening. A soft patch in exports is however expected to continue, with pressures from abroad already affecting manufacturing (through slower exports) and investment (through foreign capital outflows due to global uncertainty).

GDP GROWTH (annual %) - left

Source: Cushman & Wakefield

INFLATION (annual %) - right

Cushman & Wakefield LLP 43-45 Portman Square London W1A 3BG www.cushmanwakefield.com/knowledge

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