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May 2010 Anton Stroutchenevski, Senior Economist

Generous Budgetary Policy Is the Biggest Threat for the Economy. May 2010 Anton Stroutchenevski, Senior Economist. Rising oil price and expanding foreign borrowing failed to accelerate Russia’s growth: Russia can grow at any oil price. Source: State Statistics Service, Troika estimates.

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May 2010 Anton Stroutchenevski, Senior Economist

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  1. Generous Budgetary Policy Is the Biggest Threat for the Economy May 2010 Anton Stroutchenevski, Senior Economist

  2. Rising oil price and expanding foreign borrowing failed to accelerate Russia’s growth: Russia can grow at any oil price Source: State Statistics Service, Troika estimates Source: State Statistics Service, Troika estimates

  3. The government expects budget revenues to fall, R bln... Note: The government initially forecasted revenues in 2009 at R6,713.8 bln. In 4m10 revenues reached R2,618.3 bln, while the deficit was at R444.6 bln. Source: Finance Ministry

  4. … but has not cut expenditures, R bln Note: The government initially planned expenditures in 2009 at R9,845.2 bln. Source: Finance Ministry

  5. Due to increased expenditures, the breakeven oil price climbed to $100/bbl Urals Breakeven oil price, $/bbl Urals Federal budget expenditures, % of GDP Note: The chart shows two scenarios for 2011: (1) spending kept at around current levels (i.e. R10 trln); and (2) spending cut to R9.3 trln as stipulated by the current medium-term fiscal plan. Source: Finance Ministry, Troika estimates

  6. 15% 10% 1961 1999 5% 1989 GDP, y-o-y 0% -5% 2009 -10% -15% 1992 10% 15% 20% 25% 30% 35% 40% Investments/GDP Russia is returning to more a balanced model of economic development after several years of overheating Source: State Statistics Service, Troika estimates

  7. A larger government and a budget deficit in Russia usually means worse economic performance Source: State Statistics Service, Finance Ministry, Troika estimates Source: State Statistics Service, Finance Ministry, Troika estimates

  8. Inflation is falling in any case Source: State Statistics Service, Troika estimate

  9. Nominal interest rates have started to decline… Source: Central Bank, State Statistics Service

  10. … but real rates have grown due to decelerating inflation Based on 6m moving average inflation Based on y-o-y inflation Source: Central Bank, State Statistics Service Source: Central Bank, State Statistics Service

  11. Annual inflation has been slowing faster than the Central Bank is cutting rates Annual inflation versus refinancing rate Monthly inflation Source: State Statistics Service, Central Bank Source: State Statistics Service, Central Bank, Troika

  12. Banks’ voluntary reserves were growing Voluntary reserves and interest rates Central Bank real deposit rate andvoluntary reserves Source: Central Bank, Troika Source: Central Bank

  13. The market expects rate cuts to continue Bonds and loans in banks’ portfolios Average effective yield and refinancing rate Source: Central Bank Source: State Statistics Service, Central Bank

  14. Sustainable growth implies moderate ruble appreciation and a positive (or balanced) current account GDP growth vs real effective ruble exchange rate GDP growth vs current account balance Source: Central Bank, State Statistics Service, Troika estimates Source: Central Bank, State Statistics Service, Troika estimates

  15. Senior Management Chairman of Board of Directors and CEO, Troika Dialog GroupRuben Vardanian Chief Business Officer Jacques Der Megreditchian Chief Economist, Managing DirectorEvgeny Gavrilenkov Head of GM Peter Ghavami Research Department +7 (495) 258 0511 Head of Research Paolo Zaniboni +7 (495) 787 2381 StrategyChief strategist Kingsmill Bond, CFA +44 (207) 583 3257Strategist Andrey Kuznetsov +7 (495) 933 9844 Oil and GasSenior analyst Oleg Maximov +7 (495) 933 9830Analyst Valery Nesterov +7 (495) 933 9832Analyst Alex Fak +7 (495) 933 9829 UtilitiesSenior analyst Alexander Kotikov +7 (495) 933 9841Analyst Igor Vasilyev +7 (495) 933 9842Assistant analyst Andrey Trufanov +7 (495) 258 0511 Telecoms, Media and ITSenior analyst Evgeny Golossnoy +7 (495) 933 9834Analyst Anna Lepetukhina +7 (495) 933 9835 Metals and MiningSenior analyst Sergey Donskoy, CFA +7 (495) 933 9840Senior analyst Mikhail Stiskin +7 (495) 933 9839Analyst Irina Lapshina +7 (495) 933 9852 ManufacturingAnalyst Mikhail Ganelin +7 (495) 933 9851 FinancialsSenior analyst Andrew Keeley +7 (495) 933 9845Analyst Olga Veselova +7 (495) 933 9846 ConsumerSenior analyst Victoria Sokolova +7 (495) 933 9836Analyst Mikhail Krasnoperov +7 (495) 933 9838Assistant analyst Vitaly Chakin +7 (495) 258 0511 Real EstateAnalyst Igor Vasilyev +7 (495) 933 9842 ChemicalsSenior analyst Mikhail Stiskin +7 (495) 933 9839Analyst Irina Lapshina +7 (495) 933 9852 TransportAnalyst Kirill Kazanli +7 (495) 933 9853 Small and Mid CapAnalyst Mikhail Ganelin +7 (495) 933 9851 Market AnalysisAnalyst Nadezhda Utenkova +7 (495) 933 9855 EconomySenior economist Anton Stroutchenevski +7 (495) 933 9843 Fixed IncomeHead of FI research Alexander Kudrin +7 (495) 933 9847Senior analyst Anton Tabakh, CFA +7 (495) 933 9857Senior analyst Alexey Bulgakov +7 (495) 933 9866Analyst Ekaterina Sidorova +7 (495) 933 9849 UkraineStrategist Roman Zakharov +38 (044) 207 3780Economist Iryna PiontkivskaSenior analyst Yevhen HrebeniukSenior analyst Peter KellerSenior analyst Ivan Kharchuk Analyst Alexander Tsependa KazakhstanAnalyst Zaurbek ZhunisovAnalyst Ainur Medeubayeva

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