EFTA01453229

7 March 2014 Special Report: Russia: macro implications of increased geopolitical risk 2014 vs. 2008: fundamentals ale different In terms of domestic economic development, the key difference now compared to 2008 is that the economy is not overheated. Back in 2008 the pre- crisis period was characterised by massive net capital inflows, a booming stock market and real estate segment growth, as well as high growth rates in GDP and lending. This time Russia's financial markets are less overheated and growth is approaching zero, with growth in lending decelerating. 'Figure 3: RTS Inde,c vs. Moscow Property Prices 1000 1400 1200 24 000 A000 #, 000 200 0 2000 2001 2002 2001 2006 —RTS1004. Sant Ihxmlierg Rnn..lP, Oeurxhe eent 2000 2000 2001 2010 2012 —Rune MOICOVII4cowty gam 2013 Figure 4 Russia's banking sector trends . Cossns Semis %l% —Gnaw Spouts Sr.—G.iO , Ya Wry IssS Sant CM Onesche eat In terms of debt levels, Russia's sovereign balance sheet is strong, even though the susceptibility to lower oil prices has remained high, as evidenced by the level of the non-oil budget deficit, which exceeded 10% of GDP last year. On the corporate side, the maturity of debt is less short term than in 2008 and has less currency mismatches. At the same time, overall debt levels in the corporate sector remain significant, while the balance sheet of Russia's households is arguably more problematic now than in 2008 (to the degree that it represents one of the macro risks and concerns for the CBR) after Russia's household debt grew at a rapid pace in the past several years. Fkrure 5! Russia's external debt profile, % GDP. 2006,2013 111111111111 1111111111 1111W§M111111;;;;IiVarg"igg:3;; •General Govt d SOEs - ST •Private sector - ST tt General Govt 8 SOEs - LT Vf Private sector - LT SOLOOR DOCOCIN 8031 Deutsche Bank AG/London Page 3 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0 110735 CONFIDENTIAL SDNY_GM_00256919 EFTA01453229