Russia was one of the countries hardest hit by the international financial crisis, because of the collapse of fuel prices (the country's leading export) at the end of 2008, which led to the devaluation of the rouble. The crisis was skilfully managed by the Russian authorities, which notably steered their anti-crisis plan towards ensuring the stability of the banking system. This management was made possible partly due to Russia's high level of foreign exchange reserves, thanks to which it has been able to withstand the external shock.  We expect a return to growth (between 3% and 4%) in 2010, driven to a large extent by exports and public spending. We believe that domestic demand will only pick up from 2011.

Over the last few months there has been a gradual turnaround in the Russian economy (after an 8% contraction in 2009) thanks to the rise in fuel prices and the upturn in exports and industrial production. However, signs of a rebound in consumption and domestic investment are late in coming. Unemployment remains high (nearly 9%) and surveys suggest that investment will stagnate in the next few months. Inflation has reduced due to the effects of the recession and a fall in food prices, but it remains structurally high (more than 7%). The downward trend may be reversed, however, when domestic demand takes off again, because of the still relatively uncompetitive structure of the economy.

After the 35% devaluation against the dollar in the first quarter of 2009, the rouble has reappreciated by more than 20% over a one year period, thanks to renewed trade surpluses and the return of capital. This has enabled Russia's Central Bank to lower its key interest rates. The banking sector's situation is also gradually improving and its recapitalisation needs are decreasing due to the slowdown of missed repayments, the fall in refinancing costs and the rise in deposits. These conditions should pave the way for the gradual takeoff of domestic credit.

Russia is taking more time to come out of the crisis than the other major emerging countries such as China, India and Brazil. Nevertheless, the country is entering this period in a strong financial position, with a lower budget deficit than expected and a negligible public debt ratio (less than 10% of GDP). Russia is also still well placed to deal with external shocks as it has maintained a high level of foreign exchange reserves (the world's third highest). In the medium-term, major structural reforms must be made to improve the economy's competitiveness and so make it less dependent on external capital flows and commodity prices.