MUNICH: The Russian vehicle market is forecast to contract sharply this year and while it will recover in future, its long-term growth will be well below previous predictions, according to a new report.

Roland Berger Strategy Consultants forecast that the number of vehicles sold in Russia would fall by 7% during 2014 and would subsequently rise to 3.3 million a year by 2020, compared to the 4 million that had been earlier expected.

It attributed this development to political uncertainties and the tensions with Ukraine in the short term, as well as deeper macroeconomic and structural causes, including a lack of diversification in the economy, weak economic growth and no stimulus for the market.

"The market is still attractive, but the previous forecast of over 4 million vehicles sold in 2020 cannot be met, even in an optimistic scenario," said Uwe Kumm, managing partner of Roland Berger's Moscow office.

The share of imports is likely to increase from the current figure of 30% to nearer 50% during this period as World Trade Organisation concessions allowing support for local production are due to expire in 2018.

"At that point, the advantages of manufacturing in Russia will disappear," according to J├╝rgen Reers, partner in Roland Berger's Automotive Competence Center.

Many international manufacturers will then significantly scale back their production and local value added in Russia from their original plans.

Roland Berger suggested that it would no longer be profitable to produce models with fewer than 25,000 units per year in Russia and said that of the vehicle models currently manufactured locally by foreign manufacturers, more than 40% could be imported to Russia in the future.

"That's why automotive manufacturers and suppliers have to quickly take counteraction and realign their strategies," said Reers.

Data sourced from Roland Berger; additional content by Warc staff