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22 Jan, 2010 14:03

Fitch ups Russian credit outlook as PwC looks to bigger long term

A sharp rebound in commodity prices has seen Fitch Ratings move Russia’s credit rating from negative to stable, as PwC says Russia could become the largest European economy in two decades.

Fitch upped the outlook on Russia’s credit rating to stable from negative and reaffirming its long-term foreign and local currency issuer default rating at BBB,’ with Edward Parker, the Head of emerging Europe at Fitch pointing to renewed confidence about the Russian economy.

“The revision reflects our greater confidence in economic and financial stability in Russia,”
The upgrade comes ahead of a major Russian international debt sale – its first in more than a decade – and makes Fitch the second ratings agency to upgrade Russia this year following in the wake of Standard & Poor’s. Edward Parker said Fitch noted the impact of rebounding in crude prices over 2009 on Russia’s budgetary position.

“The rebound in oil prices, recovery in net private sector capital inflows and economic activity, decline in inflation, reduction in downside risks in the banking sector and a lower than expected 2009 budget deficit outturn underpins our decision to revise Russia’s rating outlook to stable,”
Parker said.

The Russian government has flagged the upcoming bond issue as high as $17.8 billion. Finance Minister Alexei Kudrin hailed the Fitch upgrade as reflecting measures the government had taken to manage the economy through the downturn, and could facilitate new investment needed for diversification away from commodities.

“This is a big accomplishment, that our ratings are being restored from negative to stable. That means the measures, taken by the government, are correct and they reinforce trust. International trust, and trust from the markets is exactly what Russia needs right now.

Ratings affect also our loans, loans taken by the private sector, refinancing rates and most importantly – new investments. Only new investments can help us with modernization and economic growth. Partially, that’s also foreign investments. The positive rating means also our domestic financial market has become more stable.”

Oil and gas revenues in 2009 climbed to more than $100.7 billion, according to Finance Ministry estimates, as much as 45% more than was planned early in the year, and making for a fiscal deficit of 6.4% of GDP instead of 8.3%. Fitch ratings announced it had revised its forecast for Russia’s budget deficit in 2010 to 5% from 6%, with Finance Minister Kudrin saying that it will narrow to 3% of GDP by 2012 if crude averages $70/bbl. Fitch also added that it expects Russian GDP growth in 2010 to reach 4.5% and inflation to slow to 7.5%.

The Fitch re-rating came on the same day that audit and consulting firm PricewaterhouseCoopers suggested that Russia could become the largest European economy by 2030. In a report released in London PwC says Russia will be the leading European economy by 2030 ahead of Germany and France.

In the report PwC’s London based head of macroeconomics, John Hawksworth, says that by 2030 the worlds largest economies will be (in order) China, the United States, India, Brazil, Russia, Germany, Mexico, France and Great Britain.

He says that in coming years a new group of emerging economies will come to replace the traditional leading industrial powers, with an E-7 group, comprising China, Russia, India, Brazil, Mexico, Indonesia and Turkey, catching up with the G7 in terms of aggregate GDP in 2019, and exceeding it by 30% by 2030. Hawksworth added that China is likely to overtake the U.S. economy as the worlds largest about 2020 before an ageing economy slows its advance.

John Hawksworth, the head of macroeconomics at PWC, told RT in a live interview that his company considered growing energy prices as a key factor in Russia’s future success, but it also considered the high education levels and effectiveness of the Russian workforce. On the other hand, an ageing population and unequal distribution of wealth are seen as challenges faced by the country.