Russian GDP Growth of 2.7% in 2021 Suggested by Conservative Outlook, Says the Economic Development Ministry

The conservative scenario of Russia’s macroeconomic outlook suggests GDP growth of 2.7% in 2021, and 2.9% in 2022, with further stabilization at the level around 2.5% amid persisting lower business activity in a number of sectors, according to the country’s social and economic development outlook for 2021 and the planned period of 2022 and 2023 presented by the Economic Development Ministry.

According to the base case scenario of the outlook, Russia’s GDP will contract by 3.9% in 2020, and grow by 3.3% in 2021, 3.4% in 2022, and by 3% in 2023.

“From the viewpoint of domestic conditions, the conservative scenario suggests lower business activity persisting long in the sectors, whose activities were restricted in response to the novel coronavirus infection spread. Meanwhile structural changes in consumer demand, both global and inside Russia, will slow down the recovery of such sectors as entertainment and leisure, tourism, personalized consumer services,” according to the outlook.

The conservative scenario “is based on the assumption that the sanitary and epidemiological situation in the world will become less favorable, a protracted recovery of the global economy and structural slowdown of its growth rates in the mid-term due to the aftermath of the novel coronavirus infection spread.” The base case option depicts the most probable scenario of Russia’s economic development considering the expected external environment and the economic policy measures being taken.

“In the conservative option of the outlook the global economic recession triggered by restrictions imposed in the biggest countries will deepen the structural problems accumulated before the pandemic,” the ministry emphasized.

Among them are a high debt burden in developed states and a number of emerging economies, a slowdown of global trade growth due to mounting trade frictions between the largest countries, slow growth of labor efficiency, an increase of global inequality. “Amid this environment global economy will be recovering slower than suggested by the base case scenario,” the outlook said.

The conservative option of the macroeconomic outlook also suggests oil prices in the range of $43-45 per barrel in the mid-term amid weak energy demand.

“Weak demand for energy resources will put additional pressure on global crude oil prices. That said, the OPEC+ agreement will continue influencing the oil market, the same as output reduction in the US and the countries with high production costs. In those conditions, oil prices are projected in the range of $43-45 per barrel in the mid-term in the conservative scenario, which is lower than base-case parameters,” the ministry explained.

Moreover, the accumulated corporate losses in the conservative scenario will restrain the recovery of profits and, as a result, of investment activity. “Amid this environment growth rates of fixed investment are projected at the level of 3.7% in 2021 and around 4.5% in the mid-term,” according to the outlook.

“Considering more moderate, than in the base case scenario, economic growth rates, growth rates of real disposable income of households in the conservative option are expected in the range of 1.6-1.9% in the mid-term, which will have a restraining effect on consumer demand,” Russia’s Economic Development Ministry said.

It estimates the growth of retail trade and charged services to consumers in 2021 in the conservative scenario at 4.5% and 5.6%, respectively, whereas in 2022-2023 both will continue growth by 2-2.3%.

Russian Central Bank: Russia’s Further Economic Recovery Can Be Unstable

Russia’s further gradual economic recovery may be unstable amid restrained consumer behavior, the Central Bank said in its report on monetary policy.

According to the Bank of Russia, further gradual economic recovery can be unsustainable due to the decline in income, restrained consumer behavior, cautious business sentiments, as well as restrictions on the part of external demand.

“Taking into account these factors, according to our forecast, GDP will decline by 4.5-5.5% this year,” the regulator said.

Earlier, head of the regulator Elvira Nabiullina noted that after a pandemic of a new coronavirus infection the Russian economy could recover in more than 1.5 years. At the same time, the regulator does not yet see the need for additional measures to support the economy. The Central Bank expects that the revival of the national economy will not “fizzle out” in the fourth quarter and the recovery will continue.

IMF: Russia’s GDP Will Decrease by 5.5%

The International Monetary Fund (IMF) predicts a drop in Russia’s GDP by 5.5% in 2020, according to the April report on the global economy.

In general, the global economy will shrink sharply by 3% this year. This decline will be significantly higher than in 2009 when the world economy shrank by 0.1%. In 2009, Russia’s GDP fell by 7.9%.

Russia Loses $30Bln a Year in Post-Crimea Investment Climate

Russia is losing at least $30 billion every year due to the investment climate that has followed its annexation of Crimea, economist Sergei Guriev said in an interview published Monday.

Russia’s 2014 annexation of the Black Sea peninsula from Ukraine has weakened Russia’s relations with the West, launching multiple rounds of sanctions from the U.S. and the EU as well as a drop in foreign investment.

Each percentage point that doesn’t go into GDP growth equals a loss of $15 billion, Guriev told Russia’s The Bell business outlet. The Russian economy grew by 2.3 percent in 2018, according to official data.

“If it’s 2 [percentage points lost], then [Russia’s losses total] $30 billion a year,” the chief economist of the London-based European Bank for Reconstruction and Development said.

Up to $300 billion has been lost since Russia annexed Crimea, the Bell cited Guriev as saying, adding that Central Bank data puts the losses at $320 billion.

“In total, something like $1 trillion has fled Russia in 20 years,” he told the outlet.

How to Change the Life of Russians Due to the Increase in VAT

Due to the weakening of the ruble and is scheduled for 2019, raising the value added tax (VAT) may increase the prices of many goods.

Prices of clothing and footwear in Russia in 2019 may increase by 5-20% due to the weakening of the ruble and the rise in the rate of value added tax (VAT) to 20%.

Now in Russia there are three VAT rates: 0%, 10% and primary by 18%. A zero rate is levied on many kinds of transport services. Preferential 10% are the producers of the food basket (meat, milk, flour, bread, fish), children’s clothes and food, books and printed materials, medical products and medicines. All other categories of goods are at the basic rate, it is something next year and will increase by 2%. Thus, more expensive clothes and shoes, household appliances and electronics, automobiles, furniture, alcohol and tobacco products, gasoline, entertainment, trips, apartments, and housing services.

According to experts, clothing and footwear in the budget segment will rise by 5-10%, and premium — and more by 10-20%.

Pricing in the fashion sector is highly dependent on the exchange rate. With the weakening of the ruble and the rise in VAT, the cost of collections will inevitably increase, and hence the prices will also increase by 5-10%. As for pricing Western brands — it is entirely dependent on currency fluctuations, the Russian manufacturers can reduce the dependence from the course, placing orders to domestic factories, but the fabric still has to import.

The tax increase will hit the market in digital technology. Specialists of the information-analytical Agency TelecomDaily has estimated that prices for equipment will increase by about 5%, while the cost increase will manifest itself in one or two months after the introduction of the new tax. So, if before a decent fridge can be bought for 30 thousand rubles, now the price would be added for at least 1.5 thousand.

Real estate market analysts have warned that after the VAT increase the cost of construction projects will increase by 2-3%. Some experts call the more depressing figures: +10%.

The furniture is too expensive, according to the forecasts of market participants — 1-2%, although some time in the shops will be sold at the old prices previously paid for the furniture.

Russian Economic Recovery under Way in April Despite Sanctions

Retail sales in Russia picked up in April, while real wages growth exceeded expectations as the unemployment rate fell, suggesting an economic recovery was under way.

The monthly set of data released by the Federal Statistics Service, or Rosstat, indicated that sanctions that the United States imposed on Moscow in early April had little immediate impact on Russia’s fundamentals.

After two years of recession caused by a slump in oil prices and Western sanctions, the Russian economy is now recovering along with oil, the rouble has generally stabilized and global commodity prices remain favorable for an economy dependent on exports of energy and raw materials.

Retail sales, the key gauge for consumer demand, the primary driver of economic growth, were up 2.4 percent year-on-year in April after a 2.0 percent rise in the year to March. (more…)

Russia’s Economic Growth Expected to Reach 1.8-2% in 2017

Russia’s economic growth in 2017 is expected to stand at 1.8 to two percent, Russian Finance Minister Anton Siluanov said on Sunday.

“This year, we expect an economic growth of 1.8%-2%,” he said in an interview with the Rossiya-24 television channel.

In mid-December, Russia’s Central Bank forecasted the country’s economic growth in 2017 at 1.7-2.2%. The Bank’s governor, Elvira Nabiullina, said back that that the forecast leaned “to the lower threshold.” In 2018, Russia’s economic growth, as predicted by the Central Bank, will be in a range from 1.5 to 2%

Russian Economy Minister: Russia’s Budget Deficit not to Exceed 2% of GDP in 2017

Russia’s budget deficit will amount to around 2% of GDP or even less by the end of this year, Economic Development Minister Maksim Oreshkin said Wednesday.

“Despite oil prices falling to around $40 per barrel, budget deficit will be less than 2% (of GDP) this year,” he said.

According to Oreshkin, the country’s economy is on the rise. “What is being discussed now is the issue of economic growth. Global organizations and we expect (GDP) growth of roughly 2%,” he said.

The Russian government and the Central Bank are already implementing a number of measures aimed at reaching higher growth rates, the minister said. “Two years ago inflation was above 12% whereas today’s inflation is within the range of 2.6%,” he said.

Russia’s Economy Is Growing With Borrowed Money

Without any new ideas from a technocratic government constrained by President Vladimir Putin’s apparent indifference, the Russian economy is once again relying on consumers, who are borrowing more to buy real estate and imported products. The growth is real, but it’s also meager. And it will be hard to sustain without bigger changes.

On Monday, Rosstat, Russia’s official statistics agency, announced that the country’s gross domestic product increased 1.8 percent year-over-year in the quarter than ended in September. That’s lower than Bloomberg’s consensus forecast of 1.9 percent and slower than the 2.5 percent increase in the previous three months. The oil price jumped 20 percent during the quarter, but the economic statistics won’t pick up the related growth until the fourth quarter. So far this year, the Russian consumer deserves most of the credit for the growing economy. After suffering through three tough years — during which time oil tanked and the ruble devalued sharply — they are buying things again. Unfortunately, most of the things Russians are buying aren’t made in Russia.

The stability of the ruble (it has gained about 1 percent against the U.S. dollar so far this year) and low inflation (the Bloomberg consensus forecast is for it to fall by almost half to 3.8 percent this year) have helped boost consumers even though real disposable incomes dropped throughout the quarter. Households are choosing to get more leveraged.

In 2015 and 2016, household debt went down as interest rates and bad loans shot up. By the end of 2016, some 20 percent of consumer loans were non-performing, according to the Central Bank. Banks that had issued them rolled up their programs and viewed borrowers with increased suspicion. This year, however, the Central Bank has lowered its key rate from 10 percent to 8.25 percent, and banks couldn’t resist the temptation to offer more funds to private borrowers. With mortgage rates at a historic minimum and consumer loans affordable again, Russians have some convincing reasons to warm to the idea of borrowing.

The Central Bank claims it isn’t worried because consumer borrowing has only been increasing by about 2.5 percent of the monthly retail trade turnover — not enough, by its analysts’ reckoning, to drive up inflation. Russian banks have a total mortgage portfolio of some 5.5 percent of GDP, compared to 20 percent in Poland. There are, however, signs that the Central Bank sees a bubble in the making, at least on the mortgage market. Starting this month, it has required drastically higher reserves against mortgages with a down payment below 20 percent.

Apart from the lack of income growth, which makes any debt increase risky, the Central Bank is facing another problem. In recent months, it’s had to take on two large banks — Otkritie and B&N — with a combined balance sheet hole of at least $12 billion. Private Russian banks find it difficult to compete with state behemoths Sberbank and VTB without taking on too much risk. More failures would stretch the central bank’s resources.

The state banks, hit with Western sanctions and thus deprived of the cheap Western loans that fueled the previous loan boom in the 2000s, have problems of their own: They are short of liquidity. VTB would have run into trouble in the third quarter without massive government deposits.

Russia needs better growth sources than household borrowing. The government has counted on private investment growth, which was unexpectedly robust in the second quarter. But for more investment to materialize, Russia needs to develop more export competences, the way it has done with agricultural commodities such as wheat. High oil prices have historically discouraged that sort of diversification, and crude, at more than $63 per barrel, is much more expensive than the $40 the Russian government budgeted for this year. It’s even high enough for the country to start pouring money back into its reserve funds.

Russian President Vladimir Putin has always been extraordinarily lucky. The Russian economy has returned to growth and consumers have been reassured by low inflation and a stable currency just as he prepares to run for a fourth term in office next year. But sustaining even this small level of growth for another six years without structural change will be a challenge. Putin has shown little interest in explaining how he’s going to tackle it, focusing more on the complex geopolitical game he’s been playing. Whether that game is tactical or strategic, the Russian economy is in dire need of a coherent strategy as it continues coasting along on a mixture of hope, luck, oil and grain.

Reuters: Russian Economic Growth Upgraded, Inflation Seen Slowing

Russia’s economy is seen growing slightly faster this year than previously and inflation is seen slowing, a Reuters monthly poll of economists showed on Thursday.

The median forecast of 20 analysts and economists polled by Reuters in late August was for Russian 2017 gross domestic product (GDP) growth of 1.7 percent, above last month’s call of 1.4 percent.

Even though Russia’s economic outlook has improved, the poll’s median forecast is still below the economy ministry’s forecast of 2.1 percent this year.

Russia’s economic prospects could improve further, however, if the central bank cuts lending rates as analysts expect.

Respondents said the conditions were now right for the central bank to trim the key rate, now at 9 percent, at its next board meeting on Sept. 15.

A resilient rouble and steady oil prices have given the central bank room for a rate cut, analysts at Bank St Petersburg said in comments with their forecasts.

The central bank is now widely expected to trim the key rate to 8.75 percent next month, taking it to 8.25 percent by the end of the year, the poll showed.

“There are the conditions for a further rate reduction, and a step of 25 basis points is optimal,” said VTB economist Alexander Isakov. “It insures the central bank against overshooting the trajectory which leads to 4 percent inflation.”

The Reuters poll showed 2017 consumer inflation at 4.1 percent, compared with last month’s forecast of 4.2 percent.

This marks a slowdown of nearly 17 percent from early 2015.

Now, when headline inflation has already hit a post-Soviet low of below 4 percent, the central bank may embark on monetary easing cycle after keeping rates on hold since in July, the economy ministry predicted.

Russian Economy Minister Maxim Oreshkin said earlier on Thursday he expected consumer inflation to reach 3.5-3.7 percent by the end of the year.

“We think this would be among the factors that open the door for monetary policy easing by the central bank,” he said.

The poll also showed that the rouble is seen trading at 61.60 versus the dollar in a year from now RUB, slightly weaker than the 61.00 forecast last month.