Russian economy unlikely to face post-Brexit blues; nation to focus on internal affairs

The Russian economy is unlikely to have any tangible impact from Brexit. With the huge extent of uncertainty around the political processes in the European Union and the UK in the near future, any extreme change in the internal economic landscape is unlikely, noted Societe Generale in the research report. Technological and capital sanctions are expected to remain in place.

This leaves Russia on the edge of global financial swings, added Societe Generale. As long as the trade flows continue to be high with the EU, Russia’s domestic activity is likely to suffer modestly from the pound’s and euro’s deprecation as the current account surplus might contract due to higher imports of goods and services.

Meanwhile, financial capital outflows might be less intensive as local assets could be favoured by repatriation of export revenues and search for risk. Therefore, the domestic economy is expected to focus on internal affairs where the priority will continue to be the required adjustment of fiscal and monetary policies and the slow rebound of internal demand, according to Societe Generale.

“We downgrade our CA surplus estimate to 2.9 percent of GDP in 2016 and 2.5-2.0 percent in 2017-2020 to reflect the potential persistence of imports,” added Societe Generale.

Even if rise in oil price continues to be the main argument for setting up of new MinFin budget rules anticipated in the third quarter of 2016, proposed alterations in the current account and financial account stance is not expected to change the authorities’ plans.

Meanwhile, in spite of positive blip in the economic growth in the first quarter, the full-year growth trajectory should not be revised at this time, noted Societe Generale. The economic recovery is expected to be mainly driven by private consumption, which is likely to be modest throughout this year before supporting a gradual economic recovery in 2016. Net exports are likely to contribute 1.1 percentage points to the economy, stated Societe Generale.