Economic News

Decline in Key Industries - Opportunity for Certain Sectors

Russian Statistics Service reported a 6.7% year-on-year decline in output from core industry sectors in December 2008. In November it fell by 4%, which was the first drop experienced since 1999. Also, the Russian Economy Ministry expect a 16% reduction in imports in 2009 which may provide an opportunity for domestic producers, as their competitiveness starts to rise against the falling rouble. The pharmaceutical and chemistry are amongst those most likely to benefit for the new economic situation, as well as the machine-building industry.

Budget Deficit and Stagnation

Russia's Finance Minister Alexey Kudrin believes that the national budget for 2009 will exceed 5% of its GDP. In November 2008 he forecasted a 1% budget deficit. However, the 2010 budget deficit should be no more than 5%, and will go down to 3% by 2011. The Head of Sberbank, German Gref, says Russia has to prepare itself for three years of reduced growth, with 2009 being the most difficult year, while 2010-2011 will be a period of stagnation.

Rouble Falls, Prices Go Up

From the beginning of 2009 prices for many basic consumer goods in Russia have increased by over 20%, as well as public transport and utility payments for water, gas, heating, etc. One of the sectors with the highest price increases is the pharmaceutical sector, as over 70% of all medicines sold in Russia are imported. As the rouble continues to fall, many companies will start to put their price into either dollar or euro currencies, to avoid losses by putting prices in roubles.

Financial experts say prices will continue growing as the rouble continues to lose its value against the dollar and the euro. There are some particularly negative predications which believe that the exchange rate may go down to 40 roubles to the dollar, others believe that the Central Bank will finance the rate and prevent it from going below 38 roubles to the dollar. However, Merrill Lynch analysts say that the Central Bank cannot support the rouble without limit, as eventually the reserves will run out.