Publication 18 pages

Business in Russia: The New Normals

03 November 2015

Over the past year, ongoing instability in Russia’s economy has seen international businesses face new challenges. Find out what key factors are shaping the Russian economic environment today, and what might lie ahead.

The report “Business in Russia: The New Normals” written by the CEEMEA Business Group and commissioned by TMF Group, was originally published in April 2015.This new report is updated with the most recent forecast for 2016.

The previous scenarios for oil prices and the forecasts for the Russian rouble have been updated to reflect the latest changes to the business environment. In particular, a special report on the rouble scenario and the key drivers to monitor has been added to the paper. Moreover, the business and GDP outlooks for 2015 and 2016 are updated with the results of the most recent CEEMEA surveys.

What are the key factors shaping the Russian economy right now?

  1. Russia fell into recession in 2015, with GDP down by-3.2%. Unlike after the previous crises of 1998 and 2009, a big bounce back is not expected.
  2. A USD $1 per barrel decline in the price of oil entails losses to the Russian budget of about $2bn and so – with oil at $46 per barrel, down from $105 – the Russian treasury will forfeit in 2015 some $100bn on 2014 revenues. A 10% reduction in the oil price also means Russian GDP will decline by 0.7%.
  3. The current consensus for the global oil price ($57 per barrel predicted for November 2015 and $64 in 12 months’ time) remains quite high and may need to be modified downwards. We now forecast $53 average in 2015 and $57 in 2016.
  4. The US dollar will be strengthening in the next two to three years, which will impact all emerging market currencies including the rouble, and this will tend to keep downward pressure on the oil price.
  5. Investment and industrial output have been and remain the weak links; these are dragging down exports (by -33% in spring 2015) as is the low oil price.
  6. Consumer indicators are catching up on the downslide, and with retail sales and real wages at close to record low levels for the last 18 years; we do expect retail sales to fall.
  7. Inflation has stayed in the range of 15-17% since the start of the year and will slightly soften to 12.5% in December. Thus, average inflation in 2015 will be 15.5%, declining to an average of 9% in 2016 and to 7.7% by December 2016.
  8. Import substitution, defence spending and some new deals with China are among the economic positives.
  9. Russia has enough internal financial support to see it through the global and domestic economic crisis at current levels.
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