Russia: Food & Drink Report 2012
Russia's economic outlook has become more uncertain on account of the country's political reshuffle and the ongoing crisis in its main export market, Europe. Were political unrest to persist and government policy increasingly characterised by presidential decrees and internal strife between the various power elites, this could see a continuation of major private sector capital outflows, while preventing an increase in foreign investment in the years ahead. This would force us to reconsider our current outlook on fixed investment, which we currently see as a key driver of growth.
Moreover, an escalation in the eurozone cannot be ruled out and we note that concerns over a eurozone exit by a larger member, such as Italy or Spain, as well as a major shake-up to banking sector stability, could have serious repercussions for Russia's banking sector. A liquidity squeeze would restrict the central bank to a looser policy stance and risk stoking higher inflation, while exports would end up getting hit more than we are currently factoring in. Finally, we also caution that the hard landing scenario we are calling for in China is the third main risk factor to our growth outlook for Russia. A sharp drop in demand and a concomitant decline in global commodity prices would force a more abrupt rebalancing of the Russian economy towards the non-energy sector economy, which could foster several years of very weak economic growth.
