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1. Swedbank Baltic Sea Analysis No. 25 19 August 2010
Economic Research Department, Swedbank AB (publ), SE-105 34 Stockholm, tel +46 (0)8-5859 7740
e-mail: ek.sekr@swedbank.com Internet: www.swedbank.com Responsible publisher: Cecilia Hermansson +46 (0)8-5859 7720.
Magnus Alvesson +46 (0)8-5859 3341, Jörgen Kennemar +46 (0)8-5859 7730 ISSN 1103-4897
Russia
Fire, drought, and global softening –
The Russian recovery stumbles
• The global economic crisis has hit Russia harder than other comparable
emerging market economies, and the recovery has been slower. Real GDP
growth in the first half of 2010 was 4.2% and mainly driven by consumption
and inventory restocking. The drought and wildfires have taken a large hu-
man toll and are also leading to economic losses, mainly in the agricultural
sector. Food prices have already started to shoot up and commerce has
been disrupted as a consequence.
• The policy reaction to the deep economic crisis has been forceful and
successful in mitigating the negative impact on households and firms. Fiscal
policy has been expansive and monetary policy loose. However, inflation
pressures could reemerge, and weaknesses remain in the financial sector.
Little has been done to reform the Russian economy and enhance its growth
potential. There has also been a rapid reaction to this summer’s natural
disaster, although the political fall-out could be long lasting. Discontent is
spreading concerning the public sectors ability to respond to emergencies.
• The economic outlook over the next two years is characterised not only by a
rebound from the sharp contraction in 2009, but also by a weakening of the
global business cycle. We expect real economic growth in Russia to reach
4.3% in 2010, following a slowing of momentum in the second half of the
year. In 2011 and 2012, we forecast modest growth rates of 4.3% and 4.5%,
respectively. This is lower than we anticipated in our April forecast. Eco-
nomic policies are expected to remain expansive in anticipation of the up-
coming elections in late 2011 and early 2012. This will cause inflation to in-
crease and reach double digits in 2011. The rate of appreciation of the rouble
will slow as oil price increases level off. Transparency in the banking sector
is limited, which leads to uncertainties. We would suggest that the Central
Bank authorities launch a stress-test exercise along the lines of the US,
Europe and now possibly China to strengthen the trust in the banking sector
and identify remedies.

2. 2 Swedbank Baltic Sea Analysis No. 25 • 19 August 2010
The Russian economy rebounds – but from a
deep trough
Russia has seen a much sharper contraction than other emerging
economies. While China and India saw a mild weakening of economic
activity, natural resource-dependent economies such as Russia and
Brazil experienced actual declines. In Russia, the global downturn
exposed weaknesses in the financial sector, which led to further de-
clines and capital outflows. Despite the very significant base effects in
Russia in 2010, the first quarter year-on-year growth of 3% was
dwarfed by rates in the other BRIC countries. This suggests that Rus-
sia is less poised for a return to a normal economic situation.
Real GDP growth in the BRIC countries
(Year-on-year growth in %)
‐15
‐10
‐5
0
5
10
15
20
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
China
Brazil
India
Russia
Source: Ecowin.
It was primarily manufacturing and construction that showed the larg-
est declines during the downturn in Russia, while services held up
better. However, manufacturing has made a fairly strong comeback,
growing in positive numbers since late 2009 and at double-digit levels
during most of 2010. However, in July the annual growth rate de-
clined to 8%. Activity in the construction sector remains depressed.
Only in June 2010 did the sector start to expand in annual terms after
contracting for 17 straight months.
The economic crisis
has hit Russia harder
than other emerging
markets
Manufacturing and
construction are the
main drag on eco-
nomic growth in Rus-
sia

3. Swedbank Baltic Sea Analysis No. 25 • 19 August 2010 3
Sector growth rates, 2006 – 2009
(Year-on-year real growth in %)
‐30.0
‐20.0
‐10.0
0.0
10.0
20.0
30.0
40.0
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
Agriculture and fishing
Extraction
Manufacturing
Construction
Private services
Public services
Source: Ecowin.
The widespread droughts and wildfires that have plagued Russia dur-
ing this summer have had a devastating human toll, as well as
caused significant economic disruptions. More than 50 people have
been killed directly by the fires, while the mortality rate in for example
Moscow has doubled during the summer months, presumably due to
the reduce air quality. Even more have lost their homes and liveli-
hoods. Agricultural production has been most severely hit with wheat
production down by an estimated 30 %, but commerce is also af-
fected. Food prices have shot up reversing, possibly temporarily, the
downward trend of inflation. In big population centres reached by the
smoke, consumption is likely to decrease, and, due to the export ban
on wheat, traders and transporters will see income losses. Other sec-
tors are also affected, albeit to a lesser degree. Car plants have had
to shut down due to the smoke and consumption will likely decline as
many minimize shopping.
On the demand side, it was primarily exports and investments that led
the decline in early 2009. From mid-2009 onwards, however, the
economy started to grow again, on a quarterly basis, mainly on ac-
count of inventory restocking, but momentum started to fade in late
2009 and early 2010. Exports are rebounding, but strong growth in
imports limit the impact from net exports. Household consumption is
now contributing to growth, while investments continue to lag. For the
second quarter of 2010, preliminary data suggest that the economic
pace began to pick up again and real GDP growth reached 5.2%
year-on-year. Overall for the first half of 2010, real growth at 4.2%
over the same period last year, is somewhat better than expected, al-
though the annual growth rates are largely an effect of the very low
levels that prevailed during early 2009 (the so-called base effect).
Drought and wildfires
have a devastating
human impact and
cause widespread
economic disruptions
Private consumption
emerges as the most
important engine of
growth

4. 4 Swedbank Baltic Sea Analysis No. 25 • 19 August 2010
Demand components of economic growth, 2007 - 2010
(Year-on-year growth in %)
8 7.7 9 9.3 7.7 6.6
0
‐9.4
‐10.8
‐7.7
‐3.8
2.9
5.2
‐40
‐30
‐20
‐10
0
10
20
30
2007
Q2
2007
Q3
2007
Q4
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
GDP Investments Exports Consumption Imports
Source: Ecowin.
The rebound in consumer demand is driven by improving labour mar-
ket conditions and a boost in transfer incomes. The official unem-
ployment rate has been falling since early 2010 and reached 6.8% in
June, compared with 8.3% the same month last year. The real unem-
ployment level is likely to be higher as the official unemployment sta-
tistics have a limited coverage. A large portion of the fiscal stimulus
program has been devoted to increases in pensions and of the mini-
mum wage, and to other public transfer schemes. As household real
wages and real disposable income have increased, households are
paying off debt. Thus, as the saving rate is increasing, household fi-
nances are stabilizing, and consumption is set to be the main engine
of growth.
Labour market developments, 2005-2010
(In %)
‐10
‐5
0
5
10
15
20
Real wage (annual
growth)
Unemployment rate
Source: Ecowin.
A stable labour market
and public support un-
derpin consumption

5. Swedbank Baltic Sea Analysis No. 25 • 19 August 2010 5
Business confidence remains muted despite recent improvements in
sentiment. These improvements are not enough to spur investment
growth. Quarterly real growth rates in early 2010 remained flat after
falling throughout much of 2009. Also, investments by state-owned
enterprises failed to take off. Although investments in these sectors--
mainly extraction, electricity, and transport--are under indirect gov-
ernment control, the growth rates were below what was anticipated.
In particular, Gazprom failed to raise investment rates, while invest-
ments in electricity production and railways grew by 25 to 30% annu-
ally in the first quarter. This did not, however, compensate for the
continued stalemate in the rest of the economy.
Business sentiment, 2007 – 2010
(Index)
‐60
‐40
‐20
0
20
40
60
80
100
120
2007
Q1
2007
Q3
2008
Q2
2008
Q4
2009
Q2
2009
Q4
2010
Q2
Net balance
Construction
Finance
Services
Source: Ecowin.
The consumer inflation rate has been falling, while the exchange rate
has continued to strengthen. At mid-2010, annual inflation fell to
5.8%, compared with almost twice the rate the year before. Food
prices have come down (prior to this summer’s drought and wildfires),
and the sharp appreciation of the rouble has lowered the cost of im-
ported goods, a major part of the consumer basket. The exchange
rate dynamics reversed during the spring as the European debt prob-
lems led to falling oil prices and a flight to the US dollar. However, the
still-strong rouble erodes the competitiveness of Russian production.
Domestic producers find it harder to compete with imports, and ex-
porters face an uphill battle to penetrate foreign markets. Thus, the
need to diversify Russia’s economy away from dependence on natu-
ral resources becomes even more difficult to meet.
Despite some
improvement in
business sentiment,
investment lags
Inflation rates fall
sharply

6. 6 Swedbank Baltic Sea Analysis No. 25 • 19 August 2010
Annual inflation rate and the real effective exchange rate, 2005 - 2010
(In %)
‐15
‐10
‐5
0
5
10
15
20
Jan‐05
Jun‐05
Nov‐05
Apr‐06
Sep‐06
Feb‐07
Jul‐07
Dec‐07
May‐08
Oct‐08
Mar‐09
Aug‐09
Jan‐10
Jun‐10
Real effective
exchange rate
Inflation (eop)
Source: Ecowin.
Despite increased lending activity, uncertainty prevails in the financial
sector. Domestic credit started to increase for the first time since late
2008. However, the default by the International Industrial Bank (IIB)
on a 200 million Eurobond indicates that the problems may not be
over. Domestically, nonperforming loans remained slightly below 10%
in the first quarter of 2010, but the lack of credible information and re-
porting systems creates a lack of transparency. It is still unclear how
many loans were restructured during the crisis, and it is difficult to as-
sess future potential credit losses in the banking system. The spreads
between Central Bank policy rates and commercial lending rates re-
main high (see chart on next page), at around 4 percentage points in
early 2010, suggesting an elevated high risk assessments by the
banks. Thus, without growing confidence between lenders and bor-
rowers, funding costs for investments will remain high.
Domestic credit, 2008 - 2010
‐10
0
10
20
30
40
50
60
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.5
14.0
14.5
Jun‐08
Aug‐08
Oct‐08
Dec‐08
Feb‐09
Apr‐09
Jun‐09
Aug‐09
Oct‐09
Dec‐09
Feb‐10
Apr‐10
Annual percentage change
RUB ('000 billions)
Bank loans (left scale) Growth rate (right scale)
Source: Ecowin.

7. Swedbank Baltic Sea Analysis No. 25 • 19 August 2010 7
The policy response has been forceful – but
risks are emerging
The Russian government reacted forcefully to counteract the eco-
nomic downturn. Fiscal balances were relaxed by a total of almost 9
percentage points of GDP, through discretionary increases in spend-
ing and through lower tax collection. Although the fiscal loosening
came too late to have an impact on the contraction in early 2009, it
continues to support economic recovery, in particular through income
support to the population and, thereby, through private consumption.
The fiscal stimulus will, however, be difficult to withdraw. Much of the
spending increases came in the form of transfers to the population,
such as a 45% increase in pensions. Although this is likely to have a
direct impact on consumption, it is also likely to be politically costly to
reduce these rates, in particular as elections are coming up.
Budget indicators, 2007 - 2009
(In % GDP)
‐20
‐10
0
10
20
30
40
50
2007 2008 2009
Overall balance
Non‐oil balance
Revenue
Expenditure
Source: IMF.
The large public sector deficit has led to a sharp drop in fiscal re-
serves. Since end-2008, the Reserve Fund (which is dedicated to
compensate the budget for swings in oil and gas prices) has lost al-
most USD 100 billion. If the deficits continue at current rates, and oil
and gas prices do not see large upswings, the Russian government
will be forced to increase borrowing again, undermining the role of the
public sector as a backer of the private. The National Wealth Fund,
which serves to guarantee the soundness of the pension system, has
maintained steady balances over the crisis. However, as the funding
for the Wealth Fund is derived from a surplus in the Reserve Fund
(above 10% of GDP), inflows have slowed down since late 2008. As
for gross international reserves, also dependent on oil price and for-
eign exchange interventions by the Central Bank, the balances have
gradually started to increase again after the large decline in late 2008.
Currently, they are equivalent to about 20 months of import; signifi-
cantly above the 3 months that normally is considered being suffi-
cient.
Fiscal expansion sup-
ports economic activ-
ity, but will be difficult
to reverse
Fiscal reserves have
declined over the last
year, while interna-
tional reserves are
substantial

8. 8 Swedbank Baltic Sea Analysis No. 25 • 19 August 2010
Reserves, 2008 - 2010 (Q2)
(USD billion)
Change
Reserve Fund 137.1 60.5 39.3 -97.8
National Wealth Fund 88.0 91.6 85.5 -2.5
Gross International Reserves 426.3 439.5 461.2 34.9
20102008 2009
Source: Ecowin.
Also, monetary policy has been relaxed significantly over the past 12
months. As inflation rates have come down and the rouble strength-
ened, the Central Bank of Russia has lowered the policy rate from
13% at end-2008 to 7.75% in July 2010. Rates for consumer lending
are declining similarly, but the spread remains large. The central bank
has also increased its intervention in the foreign exchange market to
reduce the appreciation pressure on the rouble.
Monetary policy indicators, 2005 - 2010
(In %)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Jan‐05
May‐05
Sep‐05
Jan‐06
May‐06
Sep‐06
Jan‐07
May‐07
Sep‐07
Jan‐08
May‐08
Sep‐08
Jan‐09
May‐09
Sep‐09
Jan‐10
May‐10
Policy rate Consumer lending rate
Source: Ecowin.
Structural reform initiatives have not been high on the priority list of
the government during the financial turmoil. The authorities have,
however, indicated that measures to reduce corruption, improve the
business climate, and expand investments in the public sector are on
the agenda. The government is also relaunching the privatisation
process, whereby minority stakes in 10 state-owned companies will
be put up for sale in 2011-13. So far, more critical and politically diffi-
cult reforms of the civil service and liberalisations of monopolized
markets have not been addressed.
The political reaction to the drought and wildfires this summer could
indicate a concern by the government about discontent spreading
through the population. The crisis has exposed the dismantling of
crucial emergency institutions such as fire brigades and basic infra-
structure that took place in the wake of the fall of the Soviet Union.
Both President Medvedev and Prime Minister Putin have been criti-
cised, and have reacted by showing a hands-on approach in dealing
with the disaster. An export ban on wheat was imposed to pre-empt
possible shortages and rapid food price hikes. Direct support to af-
Monetary policy is
guided mainly by
its effect on the
exchange rate
Much-needed
structural reforms
have been pushed
forward
The policy reaction to
the wildfires has been
rapid suggesting a
need to limit public
discontent.

9. Swedbank Baltic Sea Analysis No. 25 • 19 August 2010 9
fected regions and farmers has been put in place and it can be ex-
pected that more general stimulus measures will be implemented to
counteract a possible slowdown in consumption. The urgency with
which the policy actions were taken suggests that the government
sees a need to enhance the efficiency of the public sector to meet the
expectations of the population.
Recovery moderates – fiscal resources safe-
guards against renewed slump
Russia: Key economic forecast indicators
(Annual change in %, unless otherwise indicated)
2008 2009 2010 2011 2012
proj. proj. proj.
Gross Domestic Product 5.6 -7.8 4.3 4.3 4.5
Of which:
Private Consumption 10.8 -7.7 4.2 4.3 3.2
Gross Investments 10.7 -15.9 -0.1 7.7 7.0
Exports 0.2 -4.2 15.5 12.0 7.1
Imports 14.9 -29.8 20.0 18.0 5.3
Inflation (%, ave) 14.1 11.7 6.6 8.9 10.0
Inflation (%, eop) 13.3 8.8 7.5 10.0 10.0
Unemployment rate (% of labour force) 6.4 8.4 7.5 7.0 7.0
Current account (% of GDP) 6.2 4.0 4.0 3.8 3.5
Fiscal deficit (% of GDP) 3.5 -5.9 -6.5 -5.0 -4.0
Government debt (% of GDP) 7.8 10.9 12.0 11.5 11.0
Rouble (basket USD/EUR) 35.4 36.1 32.0 31.0 30.0
Oil prices (USD/b) 97.0 62.0 78.5 82.0 90.0
Sources: Ecowin, IMF and Swedbank projections.
While the economic rebound in the first half of 2010 was somewhat
stronger than expected, estimated at 4.2% compared with 2009, we
now believe that the Russian economy will face a slower pace of ex-
pansion in the near future. The first half of the year saw private con-
sumption firming up on the back of strong fiscal support, a strength-
ening of the labour market, and inventory restocking spurring growth.
However, with the combination of a weaker global outlook and the
impact of the wildfires and drought, the rebound is set to slow in the
second half of the year. For the year, real growth in 2010 is expected
to reach 4.3%. Compared with our forecast in April, developments in
the first half of the year were better than expected, but the pace of
growth for the remainder of the year is set to slow.
For 2011, real economic growth will be negatively affected by the
global fiscal consolidation but mitigated by the ability of the Russian
government to continue its expansionary economic policies. The elec-
tions scheduled for late 2011 (parliamentary) and early 2012 (presi-
dential) make the likelihood of a fiscal consolidation small. We project
that real economic growth will hit 4.3% in 2011 before reaching 4.5%
in 2012. Thus, economic output in Russia will return to the 2008 level
only in the third quarter of 2011. In the medium term, real economic
The economic rebound
will slow in the second
half of 2010
Fiscal stimulus will limit
the negative impact on
growth in 2011 and
2012

10. 10 Swedbank Baltic Sea Analysis No. 25 • 19 August 2010
growth in Russia will remain below potential unless wide-ranging
structural reforms are implemented.
Real GDP level, 2008 - 2012
(2008=100)
90
92
94
96
98
100
102
104
106
2008 2009 2010 2011 2012
Sources: Ecowin and Swedbank projection.
External developments will have a mixed impact on Russia’s econ-
omy. While the world market price for oil has increased steadily since
early 2009, we have lowered our forecast of the rate of increase due
to weakening overall global demand. We expect, however, that export
earnings will continue to provide the authorities with resources to
support the domestic economy. Sagging overall growth in the largest
developed economies will reduce demand for Russian exports other
than oil and will, thus, work against a much-needed diversification of
the production structure. In addition, the volatility of international capi-
tal flows could create problems for the Russian banking sector and
affect credit to households and companies.
The value of oil production and the oil price, 200-2012
0
20
40
60
80
100
120
0
1000
2000
3000
4000
5000
6000
7000
8000
2000 2002 2004 2006 2008 2010 2012
Value of oil production
(mRUB)
Oil price
(US$/b, LHS)
Sources: Ecowin and Swedbank projection.
The economic impact on a national level from the drought and wild-
fires is mainly short term, and government actions are likely to miti-
gate most of the negative effects. Some regions will, however, be
more affected, and the food price increases could raise inflation ex-
pectations. The most long-lasting impact could be a growing mistrust
in public services in general and in the political representatives in par-
ticular. It will remain a challenge for Russian politicians to reverse this
trend.
The Russian economy
is dependent on exter-
nal developments, in
particular the world
market oil price and
capital flows
Government action is
likely to mitigate most
negative effects of the
natural disaster, but
could face increasing
mistrust.

11. Swedbank Baltic Sea Analysis No. 25 • 19 August 2010 11
Russian consumers have suffered during the recession, but we ex-
pect that government support, a thawing of the credit markets, and a
strengthened labour market will provide a firm basis for private con-
sumption over the next year. The election cycle will limit the govern-
ment’s willingness to embark on much-needed fiscal consolidation.
This means that the significant increases of public pensions and
spending support for the regions will remain in place. The labour mar-
ket will continue its gradual improvement on the back of a resumption
of confidence in the business sector and with continued public policy
support, and we expect the unemployment rate to drop to 7½% by
end-2010 and 7% by end-2011. The stimulus will safeguard recent
gains made in real wage developments and disposable income,
which further underpin a robust consumption growth.
Demand composition of real GDP, 2005-2012
(In constant 2003 rouble)
0
5000
10000
15000
20000
25000
2005 2006 2007 2008 2009 2010
proj.
2011
proj.
2012
proj.
Household
Consumption
Investments
Exports
Imports
GDP
Sources: Ecowin and Swedbank’s projections.
We expect investments will continue to lag in the recovery as the pre-
crisis investment boom has created a significant overcapacity. In par-
ticular, the construction sector showed strong growth rates in the
years leading up to the crisis, and it will take some time before de-
mand again will meet existing supply. Low capacity utilisation rates,
combined with high risk aversion in the banking sector, will push back
many large investment decisions. In addition, foreign direct invest-
ment is likely to be constrained by the slowdown in the major econo-
mies. For the long term, i.e., beyond 2012, it will be crucial for the
Russian economy to stimulate more investments, both domestic and
foreign. Russia’s share of investment in GDP has been lower than in
most other emerging countries, and, to raise the long-term sustain-
able economic growth rate, investment needs to expand. Not least
will public investments in infrastructure be important to lure private
business to grow their production in Russia.
The financial sector remains strained despite a resumption of credit to
the private sector. Even though the IIB recently defaulted on its exter-
nal obligations, the banking system looks stable and able to service
outstanding debt obligations. In fact, the financial sector is liquid as
monetary policy is loose, capital inflows continue, and lending is con-
strained. However, the level of uncertainty in the banking sector is
Private consumption
is supported by fiscal
policy and stable
labour market
Investments will grow
slowly, well below what
is need to raise long-
term growth
A stabilising financial
sector is still plagued
by lack of credible
information

12. 12 Swedbank Baltic Sea Analysis No. 25 • 19 August 2010
substantial. There is a need for strengthened banking supervision to
push for increased transparency, reduce connected lending, and im-
prove loan classification and provisioning systems. There is a risk that
bad loans are rolled over (so-called evergreening, or “extend and pre-
tend”) and that they will resurface at a later stage, thereby extending
the slow comeback of credit. A “stress-test” of banks based on inter-
national experiences could serve to reassure markets and provide
guidelines for further actions to strengthen the financial sector in Rus-
sia.
Despite falling inflation rates since early 2009, the expansive fiscal
policy will put upward pressure on prices, and monetary policy is
unlikely to be aggressive enough to push back. Rapidly increasing
food prices due to the drought and wildfires will lead to a jump in the
inflation rate in 2010 and, possibly, increased inflation expectations.
However, the somewhat weaker momentum in the economic recovery
in 2010 and an expected continued strengthening of the rouble will
limit the inflation to around 8% at end-2010. For 2011 and 2012, we
expect inflation rates to reach double digits.
Exchange rate and oil price projections, 2009-2012
25
27
29
31
33
35
370
10
20
30
40
50
60
70
80
90
100
2009 2010 proj. 2011 proj. 2012 proj.
RUB vs USD/EUR (reversed)
USD/b
Oil prices Rouble basket (right scale)
We do not expect any significant policy reversals over the forecast
period. The overarching goal of Russian policymakers is likely to
be to stabilize the economy while boosting domestic purchasing
power in the run-up to the elections in late 2011 and early 2012. It
will be key to support labour market developments and, thereby,
sustain positive wage developments. The primary tool will be a
continued expansive fiscal policy. Despite the large and successful
fiscal stimulus undertaken to mitigate the impact of the global fi-
nancial crisis, the government is unlikely to embark on any major
consolidation.
It is also unlikely that monetary policy will address the increasing
inflation rates. Limiting inflation will not be the primary goal, al-
though the Central Bank of Russia is discussing and preparing for
the introduction of an inflation-targeting regime instead of the cur-
rent policy of a managed exchange rate float. Instead, monetary
policy rates will be kept low not only to prevent market rates from
increasing and thus denting growth prospects, but also to limit ap-
Inflations rates are
likely to start rising and
hit double digits in
2011, while the rouble
will remain stable
The policy response is
likely to continue to be
expansive due to up-
coming elections and
despite rising inflation
Monetary policy rates
to stay low

13. Swedbank Baltic Sea Analysis No. 25 • 19 August 2010 13
preciation pressures on the rouble, which would make Russian
companies less competitive.
We also do not expect any significant reform initiatives. Even the
recent renewal of the privatisation process can be expected to
have a limited impact, as majority control in most cases will be
maintained by the government. The authorities are, moreover,
unlikely to undertake reforms that could cause political controver-
sies. The most urgent of such reforms would be to make the public
sector and civil service more efficient, and to increase competition
in sectors that in many regions now are shielded.
Both the upside and downside risks to this scenario derive mainly
externally, and we consider them to be evenly balanced. However,
due to the still weak and largely unknown situation in the Russian
banking sector, the impact from negative developments, such as
renewed capital outflows, could be substantial. Domestically, the
largest risk is a rapidly increasing inflation rate. Once higher infla-
tion rates become entrenched, they will entail significant losses
and require contractionary policies to reverse, which, in turn, will
hurt growth and income levels over the medium term.
Magnus Alvesson
Economic Research
Department
SE-105 34 Stockholm
Telephone +46-08-5859 7740
ek.sekr@swedbank.se
www.swedbank.se
Legally responsible publisher
Cecilia Hermansson,
+46-8-5859 7720.
Magnus Alvesson, +46-8-5859 3341
Jörgen Kennemar, +46-8-5859 7730
ISSN 1103-4897
Swedbank Baltic Sea Analysis is published as a service to our customers.
We believe that we have used reliable sources and methods in the
preparation of the analyses reported in this publication. However, we cannot
guarantee the accuracy or completeness of the report and cannot be held
responsible for any error or omission in the underlying material or its use.
Readers are encouraged to base any (investment) decisions on other
material as well. Neither Swedbank nor its employees may be held
responsible for losses or damages, direct or indirect, owing to any errors or
omissions in Swedbank Baltic Sea Analysis.
Significant structural
reforms are unlikely
before the elections
Risks are evenly
balanced, but the
impact from a negative
shock could be more
severe