The document summarizes recent macroeconomic developments in Russia and their implications. It finds that Russia's external sector is broadly balanced, inflation is expected to slow in the second half of 2015, and the recession has increased Moscow's price competitiveness. The monetary policy of the Central Bank will likely remain tight to contain inflation, though interest rates may gradually decrease. Capital flight is expected to slow in 2015 as payments on foreign debt decline.

1. Recent macroeconomic developments and their implications
for Moscow (first half 2015)

2. 2
Macroeconomic developments. Main conclusions.
Russia’s external sector is broadly balanced but risks are mainly on the downside. In the absence of
adverse external developments such as sharp oil price fluctuations or unexpected external shocks
(sanctions and political risks) the following economic developments are expected to take place in the
foreseeable future:
• According to the existing data payments on government and corporate external debt will decline
contributing to a deceleration of foreign exchange reserves depletion and modest RUR
appreciation. RUR exchange rate will remain broadly stable H2 2015.
• Monetary policy of the Central Bank will remain tight. The main economic policy dilemma is
whether to contain inflationary pressures at the cost of GDP growth resumption. It is expected that
the CBR will reduce it’s reference rate in consecutive steps in line with inflationary developments.
It is expected that inflation will slow down in the H2 2015 and onwards.
• A combination of inflationary dynamics and considerable devaluation of the RUR in 2014 have
created stimuli for an increase of productivity in the Russian economy.
The recession that began in 2014 has brought about a considerable reduction in costs of doing
business and an increase in Moscow’s price competitiveness. The current economic situation provide
the unique window of opportunity to access Russia’s markets. Given the current monetary policy stance
investors that have access to internal long-term financing will gaining a considerable competitive
edge.

3. 3
Main findings under the baseline scenario:
By the end of 2015 inflation is expected to be 113.3–113.6%
(dec 2015 to dec 2014).
Estimated average inflation in 2015 is 115.7–116%.
Weakening of the rouble exchange rate in the end of 2014
played a major role in an increase of inflation in the first half
of 2015.
Main assumptions of the baseline scenario:
Baseline scenario assumptions
106.1%
107.8%
111.3%
116.9%
113.5%
100%
105%
115%
120%
2014 2015 (est)
In % to relevant month of the previous year
Consumer price index in Russia
117
106
109
109
111
102
100
110
109
107
108
75
53
57 58
64
40
60
80
100
120
2012 2013 2014 2015
Oil prices, Urals, USD/barrel
58
58 60
64Oil prices
Rouble
exchange rate
USD/
barrel
RUR/
USD
RUR/
USD
USD/
barrel
yearly average
in 2015
yearly average
in 2015
at the end
of 2015
by year’s end
(dec 2015/dec 2014)

4. 4
Trade balance
The reduction of global oil prices will be
translated in a contraction of volume of oil-
related exports (60% of all exports) by an
estimated 130 USD bn.
Trade balance will remain positive due to a
reduction in imports caused by a decrease
of real disposable income of the population
and a contraction of internal demand.
Trade balance will contract by an estimated
30% in 2015 in comparison to 2014.
Trade balance Imports Exports
147
197 192 182 190
136
393
515 527 523
498
366
246
319 336 341
308
230
0
200
400
600
2010 2012 2013 2014 2015 (est)2011
Trade balance, USD bn
Reduction in
the value of
oil exports
Decline in
domestic
demand

5. 5
Current account
Capital flight in 2015 will slow down:
• A reduction in the volume of payments
on foreign debt will decrease resulting
in an improvement in investment
income balance (interest).
• A sharp contraction of foreign travel will
lead to an improvement in non-factor
services balance.
Current account balance in 2015 will
remain roughly the same as in 2014.
147.0
197.0 192.0 182.0 190.0
136.0
-26.1 -33.6 -46.7 -58.3 -55.1 -47.0
-38.7
-51.0
-56.9
-66.5 -57.5
-18.5
-14.7
-15.1
-17.1
-22.4
-17.9
-13.5
67.5
97.3
71.3
34.8
59.5 57.0
-200
-150
-100
-50
0
50
100
150
200
2010 2011 2012 2013 2014 2015 (est)
-79.5
-99.7
-120.7
-147.2
-130.5
-79.0
The main components of the current account, USD bn
Current account balance Non-factor services balance
Investment income balance
(interest, dividends)
Other current account operations
Current account

6. 6
Financial account
On-going restrictions on the access to foreign capital
markets will impede the accumulation of foreign currency
debt by corporate and banking sectors of Russia.
In the short term the volume of payments on government and
corporate foreign debt will diminish.
114.5 109.7
123.9
139.1
163.1
119.8
67.1
0
40
80
120
160
2010 2011 2012 2013 2014 2015* 2016*
* As of 01.01.2015, principal debt, without debt on call.
Schedule of payments on government and corporate
foreign debt, USD bn
2010 2011 2012 2013 2014 2015
(est)
2016
(est)
-75.6
-152.3
-128.5
-180.9
-74.3
-35.0
-55.0
44.9
67.5
92.4
124.4
-50.7
-45.0 -35.0
-200.0
-150.0
-100.0
-50.0
0.0
50.0
100.0
150.0
-30.7
-84.7
-36.0
-56.5
-125.0
-80.0
-90.0
Financial account balance (investments)
Net acquisitions of financial assets:
“+” — sale of foreign assets
“-” — acquisition of foreign assets, investments abroad
Net incurrence of liabilities
“+” — sale of internal assets, foreign direct investments
“-” — decrease in liabilities to foreign residents, payments on internal
assets
Financial account balance (investments)

7. 7
Main components of the balance of payments
67.5
97.3
71.3
34.8
59.5 57.0
90.0
-42.0-30.7
-84.7
-36.0 -56.5
-125.0
-80.0 -90.0-36.8
-12.6
-30.0
22.1
107.5
23.0
-200.0
-150.0
-100.0
-50.0
0.0
50.0
100.0
150.0
200.0
2010 2011 2012 2013 2014 2015 (est) 2016 (est)
Change in FX reserves (“+” – decrease, “-” – increase)
Capital account (gratuitous transfer of ownership rights and debt cancellation)
Russia’s debt write-offs in 2014: Cuba – 32 USD bn, North Korea – 10 USD bn.
Current account balance
Financial account (investments)
(“-” – net lending, “+” – net loans)
A contraction in the volume of payments on foreign debt will
be a major factor behind a slowdown of capital flight in 2015.
This will allow for a deceleration of FX reserves depletion
leading to a rouble appreciation.

8. 8
Monetary aggregate (M2) and its influence on economic growth
Growth rate of monetary aggregate M2 is decelerating
which is in part due to limits imposed on banking credit. The
persistence of current situation will lead to a contraction of
the monetary component of inflation.
At the same time lack of money in the economy may
negatively affect prospects of economic growth resumption.
-20
-10
0
10
20
30
40
50
60
70
-15
-10
-5
0
5
10
15
2000 2001 2002 2003 2004 2005 2007 2014 2015 (est)20092006 2008 2013201220112010
Monetary aggregate (M2) and GDP, y-o-y
М2 (lhs) GDP (rhs) Inflation, y-o-y (lhs)

9. 9
Rouble exchange rate and CBR’s refinancing rate
In february-april 2015 rouble appreciated by 26% in relation
to dual currency basket regaining half of its devaluation in
2014. This has became possible due to a sharp contraction of
imports and positive global oil price movements.
Since the beginning of 2015 Central Bank of Russia has
reduced its reference rate in three steps by a total of 4,5 pp.
However, its level still remains prohibitively high to end
borrowers, resulting in to a contraction of consumer demand
and negatively affect investments.
34.66
37.87 36.61
38.61
41.03
53.02
75.35 72.71
54.00
32
37
42
47
52
57
62
67
72
77
82
2013 2014 2015
2
4
6
8
10
12
14
16
18
Minimal rate on weekly REPO auctions, % (rhs) Rouble exchange rate to dual currency basket Source: Central Bank of Russia
Rouble exchange rate and refinancing rate of the CBR

10. 10
Factor input to an increase in inflation in Russia in 2015
The weakeking of the rouble exchange rate in the end of
2014 played a major role in the increase of inflation in the
first half of 2015.
At the same time influence of the devaluation is almost
exhausted (inflation in january-may 2015 was 108,3% to
december 2014 and continue to grow at moderate rate.
Further increase of inflation in 2015 will be due to internal
factors (growth of monetary aggregate M2, producer prices
and tariffs).
The only factor that contributed to containing inflation
growth in 2015 is the contraction of consumer demand.
2015
-0.8
0.4
0.9
0.8
3.7
5.9
2.5
+13.4%
2016
-0.8
0.4
0.8
1.9
2.8
1.9
+7.5%
0.5
Factor input to an increase in inflation
in Russia in 2015, end year, pp
Producer price index in
manufacturing (inflation of
expenses)
Rouble to USD exchange rate
Inflationary expectations on 2015
in 2014
Increase in regulated tariffs
Increase in monetary aggregate M2
in 2015 (emission)
Increase in monetary aggregate M2
in 2014 (emission)
Internal demand
est
103.9%
107.5%
108.0%
108.3%
109.2%
109.7% 110.1%
110.6%
111.3%
112.2%
113.4%
103.9%
102.2%
101.2%
100.4%100.5%
100.7%
100.5%
100.3%
100.5% 100.6%
100.8%
101.1%
100.0%
101.0%
102.0%
103.0%
104.0%
100%
102%
104%
106%
108%
110%
112%
114%
116%
118%
106.2%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
fact
Estimated inflation trajectory in Russia in 2015
In % to december of the previous year (lhs)
In % to previous month (rhs)

11. 11
Moscow’s Competitive Advantages
The current economic situation has given Moscow an
additional competitive edge over the world’s leading
megalopolises in attracting foreign investment.
Moscow has retained core non-cost-related competitive
advantages: high-quality manpower, extensive transport
infrastructure, highly developed ICT, research and educational
potential, high-quality urban environment.
Early 2014
Early 2014
Early 2014
Early 2014
Early 2014
Early 2014
-36%
-32%
-40%
-25%
-38%
-21%
Early 2015
Early 2015
Early 2015
Early 2015
Early 2015
Early 2015
Average salary (after tax), USD
Class A office space rental,
USD per sq. m a year
Business electricity rates, USD
Mobile communications service
prices, USD per minute
Petrol prices, USD per litre
Broadband Internet access
rates, USD per Mbit/s
1682
785
0.095
0.08
0.93
0.78
1075
535
0.057
0.06
0.58
0.62

12. 12
Cost index for a manufacturing and IT-companies
Manufacturing
company IT-company
The recession that began in 2014 has brought about a considerable reduction
in costs of doing business and an increase in Moscow’s price competitiveness.
Type of business: manufacturing
company (food production)
Employees: 2,800
Premises: owned premises and
land between the Moscow Ring
Road and the Third Transport Ring,
rented office space within the Third
Transport Ring
Type of business: IT company
(software development and
promotion)
Employees: 45
Premises: rented Class A office
between the Moscow Ring Road
and the Third Transport Ring
Contributions by individual cost components to the
overall change ** (1Q2015 on 1H2014)
* The index is calculated from the average weighted exchange rate for the period, 1Q2015 – forecast based on the average exchange rate of 65 roubles/USD
** The contribution by individual cost components is defined as the product of the change in charges associated with the given component multiplied by the
weight of this component in the overall cost structure
Contributions by individual cost components to the
overall change ** (1Q2015 on 1H2014)
1H2014 2H2014 1Q2015
Cost index*, % of 1H2014, in US
dollar terms
100.0
87.2
65.6
1H2014 2H2014 1Q2015
Cost index*, % of 1H2014, in US
dollar terms
100.0
86.1
59.3
0-5-10-15-20-25-30-35
-13.3
Domestic
raw materials
and supplies
-2.0
Managerial and
administrative
costs
-0.5
Property
rent
-0.1
Borrowed
funds
-3.7
Tax payments
(including
payroll tax)
-4.5
Utility fees
and telecoms
infrastructure
costs
-7.8
Remuneration
for key
personnel
-2.6
Foreign
raw materials
and supplies
0-5-10-15-20-25-30-35-40
-4.1
Managerial and
administrative
costs
-2.2
Property
rent
-0.1
Other costs
(training)
-0.01
Borrowed
funds
-14.1
Tax payments
(including
payroll tax)
-1.0
Utility fees
and telecoms
infrastructure
costs
-19.2
Remuneration
for key
personnel

13. 13
Global competitive position of Moscow
Amsterdam
Athens Bangkok
Barcelona
Berlin
Washington
Vienna
Hong Kong
Guangzhou
Dacca
Djakarta
Doha
Dubai
Dusseldorf
Geneva
Cairo
Karachi
Casablanca
Kuala Lumpur
Lagos
Lima
Lyon
London
Madrid
Manila
Manchester
Mexico City
Milan
Monterrey
Nairobi
New Delhi
New York
Paris
Beijing
Prague
Rio de Janeiro
Sao Paolo
Seoul
Singapore
Sofia
Stockholm
Taipei
Tokyo
Tunis
Frankfurt
Zurich
Chicago
Shanghai
HighLow
Source: Site
Selection
Magazine,
Moscow City
Investment
Agency
Investment yield
Low High
Qualityofinvestmentclimateandurbanenvironment
Moscow-2013 Moscow-2014
High
Average
Low
Istanbul
Prior to the recession, Moscow had advantages over the
leading cities of the world in terms of price competition,
while losing in terms of quality. Compared with Russian
regions and Eastern Europe, Moscow excelled in terms of
quality, but offered higher costs.
The recession that began in 2014 has brought about a
considerable reduction in costs and an increase in Moscow’s
price competitiveness.
A key objective of the Government of Moscow is to maximise
potential growth in the quality parameters.