Russia is expected to demonstrate robust growth in the coming year as it bounces back from one of the world’s steepest economic declines, according to KPMG’s business outlook survey released Monday.
Market participants expect strong growth in both the manufacturing and service sectors during the next year.
Business activity in the manufacturing sector showed a rating of 59 percent, indicating the difference between market participants expecting an increase and those expecting a decrease. Optimism on Russian manufacturing trailed only Brazil’s, which rated 84.6 percent.
Activity in the services sector was similarly strong, with Russia scoring 61 percent, behind the United States, at 65.6 percent, and Brazil, at 77.4 percent. The figures were up significantly from the beginning of the year, with Russia’s manufacturing score rising from 21.6 percent in January, while services rose from 3 percent in October 2008.
According to the report, Russia’s scores in the manufacturing sector improved across the board, with market participants pessimistic only about inventory-output ratios, where Russia scored -0.6 percent.
“The strong Russian survey responses are in line with what I would have expected. Russia suffered from a steeper and later decline than many comparable markets — and with the worst reduction in GDP amongst the BRIC economies,” Tony Thompson, head of advisory at KPMG in Russia, said in the report.
He added, however, that there were certain risks for business in both sectors, as inflation could grow significantly.
“As we come out of this recession, there will be significant growth — but it may come at a price. Traditionally low input costs — especially for energy and raw materials — are likely to become a thing of the past, leaving Russian businesses exposed, for once, to the unwelcome combination of spiraling prices, continuing underlying inflation and relatively high borrowing costs,” he said.
The report said inflationary expectations for input and output prices in the manufacturing sector were at their highest throughout the BRIC region. In Russia, input and output prices reached their highest since July 2008, at 63.5 percent and 55.1, respectively.
Expectations for price growth in the services sector are similarly high, with a net 44.5 percent of respondents expecting a rise in input prices and 45.9 percent seeing growth in output prices.
Employment is also likely to rise in both sectors over the next 12 months, the report said. It stood at 30.9 percent in the manufacturing sector and at 32.9 percent in the service sector in October.
But one should treat the employment figures cautiously, Thompson said. “Businesses may well be bullish about taking on more employees in 12 months’ time, but I guess this will follow the pattern currently seen across the country — in that demand is centered on Western Russia and focuses on small numbers of skilled workers,” he said.
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