The Federal Statistics Service (FSO) confirmed that real GDP contracted by 7.9% in 2009; this outturn was not as bad as we or most other forecasters (including the government) had feared but it still represents a very steep contraction. Falling oil export prices dealt a particularly severe blow to the economy, underlining the pressing need for structural reforms to diversify Russia’s export base. All sectors of the economy were adversely affected; the construction sector shrank by 16.4%, while manufacturing and services (including the hotels and restaurant sector) contracted as well. Social unrest flared up in the worst-affected provinces. The FSO did not release any quarterly data. The economic downturn would have been far worse were it not for an improvement in commodity prices, which was spurred by reviving global demand; this boosted the Russian economy in Q4 2009.  

We believe that this improvement will continue over the course of 2010; consequently, we have revised upwards our GDP growth forecasts. Short-term prospects appear to be quite solid on the evidence of the latest purchasing managers’ index, which rose from 48.8 in December to 50.8 in January (a level above 50.0 indicates economic expansion). Similarly, retail sales figures have been exhibiting a positive trend for several months. With sharp falls in the base period, we believe that GDP growth could be robust in both Q1 and Q2 2010 on a year-on-year basis. Amid an improving economy and building inflationary pressure, the central bank seems less inclined to continue pursuing its expansive monetary policy. Having lowered its main policy rate, the refinancing rate, to a record low of 8.75% in December, the first deputy chairman of the central bank, Gennady Melikyan, recently indicated that the rate-cutting cycle will now pause until economic developments are clearer. Although the economy is rebounding, we continue to harbour concerns about sovereign defaults and persistent weaknesses in the banking system, which could derail the global recovery. With budget problems likely to force the withdrawal of fiscal stimulus in many countries, growth rates could experience pressure later this year. Indeed, it is no coincidence, perhaps, that the early-year surge in oil prices has eased. Hence, the current strength of Russia’s economy may reverse course in the coming months. 

This might delay several initial public offerings and secondary share issues due this year; these include a 20-30% stake in the fertiliser manufacturer, Uralchem, and a 10% flotation of SUEK (a leading coal producer). Other firms hoping to sell stakes in their business are: Kuzbass Fuel Company (a coal manufacturer), Metalloinvest (iron and steel), LSR (property), Profmedia (TV and film) Polymetal (mining) and Victoria (a grocery chain).