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Russia’s Raiffeisenbank: Russia’s economy is likely to experience modest but steady growth

The current economic situation in Russia and the world is very unstable. As part of the online conference Russian Economy: Risk Factors, held on the Raiffeisenbank website, the macro analyst Maria Pomelnikova answered a wide range of questions. She talked about what to expect in the near term given the crisis, inflation and currency instability.

The issue that most troubled the conference attendees was whether the crisis is really posing a threat to the Russian economy. The expert said that the risks to Russia of the escalating problems in the euro zone and the United States mainly boil down to the potential sharp drop in oil prices. Analysts from Raiffeisen Research do not expect any significant fall in oil prices. Providing there are no new oil shocks, Russia is likely to expect modest but steady GDP growth rates (2.5-4%). Moreover, the Russian economy favours comparably to that of other developing countries in terms of its low levels of debt (the external debt is about 29% of GDP, and public debt is 10% of GDP) and the presence of a safety cushion in the form of impressive foreign exchange reserves and sovereign funds. Without considering the price of oil, in order for the Russian economy to grow faster, administrative barriers need to be gradually reduced, the institutional environment needs improving, the level of competition increased, the economy diversified, corruption stamped out, transparency increased and the political system made more stable.

As for the likelihood of a banking crisis in Russia, Maria Pomelnikova noted that in general, the state is better prepared for such a development. The Central Bank of Russia has significantly increased its international reserves, which now exceed USD 500 billion. In addition, the Central Bank of Russia has all the necessary refinancing tools. The main difference between the current situation and that of 2008-2009 is that banks and companies can react to changes in external markets more quickly, resulting from a more conservative debt policy and increased financial strength.

The conference attendees were interested in the prospects for the exchange rate. The baseline forecast by Raiffeisenbank analysts is that by the end of the year the rouble may weaken by up to 4.5% with respect to the basket (to 36.5 roubles). This forecast is based on the same intensity of outflow of capital being maintained along with the seasonal decrease of the inflow of foreign currency into current accounts.

The risk of a further development of the economic situation in the U.S. by the end of the year will prevail over the risk of an escalation of the crisis in the euro zone. The latter is likely to manifest itself in 2013. As a result of this, by the end of the year the euro is expected to strengthen against the dollar to 1.32. In view of this, analysts believe it possible that the dollar will strengthen against the rouble at the end of 2012 to 31.9 roubles.

Relative to the inflation outlook, until July 2012 the MED and Central Bank target for 6% inflation looked achievable, but this summers drought is beginning to affect prices. Currently, the situation is much less severe than in 2010, when a spurt in inflation was brought about by the internal food shock. This year there were fewer fires. Having analyzed various combinations of internal and external factors, we have estimated that there will be an additional increase in prices due to the drought this year of about 1 percentage point from our previous inflation forecast of 6.5%, which casts doubt on the previous target set by the authorities (MED 6%, CB 5-6%), and as a result, interest rates have been increased by the Central Bank by 25 basis points, said a macro analyst.

Many people were interested in where it is best to keep their money. The expert advised: If you get paid in roubles, then rouble deposits in this case are considered the most appropriate solution. Especially as the rates on these accounts, as we believe, are only set to grow in the near future.

Maria Pomelnikova recommends small-and medium-sized businesses to maintain high liquidity reserves, and to prioritize debt repayments so that each year the size of the repayments does not exceed the EBITDA indicator.

The conference attendees were also interested in topics such as the investment climate in the country, the impact of Russias accession to the WTO, the economic situation in specific Russian regions, the prognosis for the banks interest rates on loans and deposits, and more. You can read the full text of the online conference Russian Economy: Risk factors on the official site of Raiffeisenbank.

Conference partners:

ZAO Raiffeisenbank is a subsidiary of Raiffeisen Bank International AG. Raiffeisenbank ranks 9th among the Russian banks in terms of assets, based on H1 2012 results (Interfax-CEA). According to the same Interfax-CEA data, ZAO Raiffeisenbank ranked 5th in terms of liabilities of individuals and 10th with regard to consumer lending.

Raiffeisen Bank International AG (RBI) regards both Austria, where it is a leading corporate and investment bank, and Central and Eastern Europe (CEE) as its home market. In CEE, RBI operates an extensive network of subsidiary banks, leasing companies and a range of other specialised financial service providers in 17 markets. RBI is the only Austrian bank with a presence in both the worlds financial centres and in Asia, the groups further geographical area of focus. In total, around 61,300 employees service about 14.6 million customers through around 3,100 business outlets, the great majority of which are located in CEE (these figures include Polbank). Raiffeisen Bank International is a fully-consolidated subsidiary of Raiffeisen Zentralbank Oesterreich AG (RZB). RZB indirectly owns around 78.5 per cent of the common stock, the remainder is in free float. RBIs shares are listed on the Vienna Stock Exchange. RZB is the central institution of the Austrian Raiffeisen Banking Group, the countrys largest banking group, and serves as the group head office of the entire RZB Group, including RBI.


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