After Russia’s economic crisis of 1998, when the country’s government devalued the rouble and defaulted on its debt – and GDP fell almost 6% – it enjoyed a decade of robust economic growth.

However, the Russian economy was hit sharply by the global financial crisis. Russian GDP sank 7.8% in 2009 as the resource-rich country felt the impact of a slowdown in global output and trade.

Growth has returned but at a slower pace. Russian GDP was up 4.5% in 2010, the slowest level for over a decade, increased 4.3% in 2011 and rose 3.4% in 2012. This year, Russia’s economy is forecast to expand by – at least compared to the early noughties – an anaemic 1.8%, according to Moscow or the World Bank, or by 1.5% by the statisticians at the IMF. Growth is forecast to rebound in 2014. Moscow is the most optimistic, estimating GDP will increase 3.6%. The World Bank predicts a 3.1% increase and the IMF a 3% rise. In any case, still below the heady days of 1999-2008.

The new, lower forecasts for Russian economic growth issued by the World Bank and the IMF last week made for gloomy reading.

The World Bank pointed to global factors – a fall in oil prices and slowing global trade – but also cited domestic reasons for its more pessimistic outlook for Russia. “Weakness in domestic demand was reflected in subdued investment and consumption activities. Consumption, the main growth driver in the past, expanded at a much slower pace than a year ago,” The World Bank wrote in its report. “Investment activities tapered sharply as large infrastructure projects for the Winter Olympic Games in Sochi and the Northern Stream pipeline neared completion. Business sentiments remained skeptical, which affected investment demand negatively.”

It added: “Recent consumer and business confidence indices point to deteriorating sentiments and lingering uncertainty on how the global economy, and specifically the Russian economy, will play out. While investors were already in a wait-and-see mode for a while, consumers now appear to have joined them and the players in the Russian economy are sitting on the fence.”

Over at the IMF, analysts agreed weak external demand and investment has slowed Russia’s GDP. The organisation said there have been signs of “some recovery of activity in recent months, indicating a stronger growth outlook for the second half of this year”. However, it warned inflation was likely to continue to remain above Moscow’s target range of 4-5% in 2014 (the IMF forecasts inflation will be 6.2% at the end of this year) and, like analysts elsewhere, urged Russia to use resources more efficiently and up investment to ensure its economy does not rely on higher oil prices.

Euromonitor International statistician Aleksej Baksajev says the slower industrial activity and investment in Russia has been “compounded” by a drop in exports of commodities.

“Flattening commodity exports are a concern for Russia given the economy’s strong dependence on exports of mineral resources. While monthly export figures in US dollar terms remain near pre-crisis levels, the trade balance surplus is falling and no longer provides the same “kick” to the economy as it did in the mid 2000s,” Baksajev wrote last week.

Baksajev does see a bounce for the Russian economy in the second half of this year but sees a slowdown next year as “more likely”. Last year’s drought means agricultural production will be better this year while retail sales remain “healthy”, he says.

However, Baksajev believes these two factors will be “temporary”. He adds: “However, the probability of the slower growth in Russia in 2014 becomes significantly higher, with annual real GDP growth rate expected at less than 3%, which is way below the 5-6% target stated by the Russian president after the March 2012 elections.”

Russia, then, like the rest of the BRICs presents more of a challenge for consumer goods companies than it perhaps did five years ago. However, industry watchers argue the market presents solid opportunities for those in the FMCG sector.

Per Hong, a partner at management consultants A.T. Kearney, says GDP may be slowing but insists a falling population means GDP per capita remains healthy.

“You’re still seeing a pretty healthy middle class that is continuing to spend,” Hong says. “One of psychological dimensions that exists within the Russian consumer is that this is a consumer population that does not have a propensity to save. They do spend, they consume. From a FMCG perspective, even in a slowing overall economic climate, there are pockets of potenial for FMCG companies to continue to target and exploit.”

Nevertheless, there have been signs unemployment is on the rise in Russia. In each of the first three months of the year, the unemployment rate remained lower than in the comparable months in 2012. However, in the second quarter of 2013, unemployment inched up 0.1%.

Hong is sanguine about the apparent pressure on jobs. “There are large segments of the economy that are controlled portions of the economy so you don’t see big pieces of unemployment in the same way. A lot of the state-controlled industry, even if they are low-paid jobs, people are still working in a well-fuelled state economy. You don’t see the same kinds of unemployment issues that you see in the West, that we are looking at in Spain, Italy or elsewhere in the eurozone.”

Ian Luyt, MD of Russia-based food and agribusiness advisory firm Novirost, contends Moscow’s number one priority is keeping inflation in check. The IMF said food prices and tariff hikes meant inflation has been above Moscow’s target and, although it says the rate has “gradually” declined since June, it still forecasts inflation of 6.2% this year – higher than the Bank of Russia’s goal of 5-6%.

“The government’s key priority is containing inflation and measures to achieve this will probably come at the expense of consumer spending over the next couple of years – for example, the freeze on pensions announced in August,” Luyt tells just-food.

Much like in Brazil, there remains confidence in the medium-term prospects for Russia despite the recent slowdown. FMCG companies will have to work harder for growth in the next few years but, looking further ahead, there is still some optimism about the market.

“I am certainly cautious about the near term. The next two, three, four years are going to be difficult years as they have been for Europe but the long-term prospects, in terms of the overall development, I remain cautiously optimistic that there is still a strong amount of potential yet to be fulfilled,” Hong says.

However, Luyt adds: “The overall prospects for the Russian economy are of course strongly dependent upon global economic growth and, by implication, increases in demand and prices of commodities. So it depends upon one’s prediction for global growth and there don’t seem to be clear and consistent signals on that.”

To read the rest of our briefing on Russia, including interviews with UK SMEs looking to build a business there and with dairy giant Arla Foods, click here.