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. Last Updated: 07/27/2016

Trade Balance Seen as Leveling Off by 2010

The country's balance of payments looks to be shifting away from exports and toward the domestically oriented import market, but analysts are unsure that there is enough momentum to make this shift successfully.

The trade balance, which counts exports net of imports, was down 23.4 percent compared to the first quarter of last year, with exports staying nearly flat as imports shot up more than 36 percent year-on-year, according to preliminary figures released by the Central Bank on Thursday.

By 2010, the trade balance will fall back to zero, moving Russia away from the mixed blessings of export dependence, Alexei Ulyukayev, deputy head of the Central Bank, told a business conference Monday.

"It seems clear that the oil price levels we saw last year will not be repeated," Ulyukayev said. "A much larger role will be played this year by noncore industries. Electricity and banking sector IPOs alone will outpace the capital raised last year, and very importantly, these will not be related to the engines that drove growth in the oil and gas sector."

The Central Bank's policy of letting the ruble appreciate has been the one of the main burdens on the oil and gas sector, which has come off the boil in recent months. Even though it makes up more than 60 percent of federal budget revenues, Ulyukayev showed little sympathy for these bread-and-butter industries and signaled that the Central Bank would hold firm in keeping the ruble strong against the dollar-euro currency basket.

"We know very well from experience that [the oil and gas sector] is too dependent on volatility in foreign markets, and these can fluctuate 10 percent to 15 percent in a very short time."

Oil prices, however, have given the sector a badly needed boost in recent weeks. Though it cooled off slightly Thursday and Friday, the price of crude remains above $64 per barrel. If it falls back to a level of below $60 per barrel, investors may be put off too much by falling oil and gas stocks to actively explore other sectors. The current level, however, should "provide a near-term floor under Russian equities, encouraging a wider variety of investors to venture into different sectors and tiers of the market," Alfa Bank wrote Friday in a research note.

Renaissance Capital suggested that the appetite for risk is too low after last month's global markets correction to expect investors to dive into new emerging market stories. "On a 12-month basis, we believe that there is a much larger chance than the market is currently discounting of an international repricing of risk leading to a major slump [more than 25 percent] in the Russian equity market," Roland Nash, the bank's head of research, wrote in a strategy statement for the second quarter.

The Central Bank figures also showed a healthy pace of capital inflows, which stand at $13 billion for the quarter. But analysts said this figure seems to be inflated by the February decision to let the ruble appreciate, making it more attractive for currency traders who bought up rubles with foreign cash.