Russian Economic Development Ministry worsens outlook for Russian economy

Russia’s Economic Development Ministry has worsened almost all of its forecasts for the country’s economy in 2016–2019, and none of the adjusted forecasts envisages high growth dynamics and achievement of a 4% inflation target, Prime reports with reference to Vedomosti.

The new scenarios encompass no changes in the economic model. The ministry assumed consistency of tax conditions, it expects the budget to suffer from a deficit every year of 2016–2019, but it is rejected the conservative development scenario of oil prices falling to US $25 per barrel and now sees the price of $40 as conservative, Vedomosti said.

Russia’s gross domestic product (GDP) will fall by 0.6% in 2016, but in 2017 it will grow only by 0.6% instead of previously expected 0.8%, and it will speed up to 2.1% in 2019, according to the adjusted forecasts, the daily said.

Inflation is projected at 5.8% in 2016, 4.9% in 2017, and 4.1% by 2019, which means that the ministry does not expect the central bank’s inflation target of 4% will be met by the end of 2017.

The ministry also expects fixed capital investments falling 2.7% in 2016, growing by 0.3% in 2017, and rising up to 3% by 2019. Real disposable incomes may fall 5.6% in 2016, but grow 0.5% in 2017 and 1.3% in 2019.

Retail sales may fall by 4.6% in 2016 against previously expected 2.7%, but the indicator will rise by 1.1% in 2017 and by 2.5% in 2019.

The target scenario of the ministry encompasses the Russian economy growing by no less than average world dynamics with labor productivity rising 5% by 2019 and inflation falling to 4% by 2018, which will allow the country to reach a macroeconomic balance, the daily reported.

The Finance Ministry also said the new scenarios do not correspond to the government regulations for development of forecasts. The Economic Development Ministry overestimated the global economy growth’s dynamics by about 1 percentage points, did not appropriately take into account a slowdown of the Chinese economy, structural problems of commodity-based economies and the end of the restoration cycle in the US, the ministry said.