Emerging Markets: Russia

Roundup


By Kim Iskyan

 

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Avtovaz: Struggling to survive in market downturn

Russian government officials have sounded increasingly optimistic notes about the country’s macroeconomic situation, as strong oil prices are likely to result in a lower budget deficit than originally forecast and a relatively smaller decline in GDP for the year. The government indicated that it intends to go ahead with a planned eurobond issue but has nearly halved its original 2010 fundraising target of $18 billion, due in part to increased optimism on budget revenues for next year. Inflation is also increasingly likely to drop to a new low of less than 10% for the year. Excessive ruble appreciation is viewed as a key threat, whereas just a year earlier the ruble was in the midst of a 50% decline relative to the dollar.

 

General Motors announced in early November that it would hold on to Opel, its embattled European arm, denying Russia’s Sberbank—in partnership with Canadian auto parts maker Magna—a foothold in the global automotive industry. The surprise decision was a setback to Russian ambitions to cultivate a national champion car company and was embarrassing to Russian prime minister Vladimir Putin, who had invested substantial time in the negotiations.

 

Avtovaz, Russia’s largest car maker (which could have been a future beneficiary of the Opel purchase), may receive another $2 billion in support, Putin said in early November, to stave off possible bankruptcy and to prevent mass layoffs. Auto sales in Russia have fallen by half since the beginning of the economic crisis.

 

French retail giant Carrefour is taking a hard line on its Russian investments with the announcement that it is exiting Russia, just months after launching its first stores. The company says that the “difficult investment environment” was a key factor in its decision.

 

 

 

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