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.

www.tass.com

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.

www.bloomberg.com

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.

www.reuters.com

IMF Confirms Recovery of Russia’s Economy in 2017

The International Monetary Fund (IMF) confirmed its April outlook on gradual recovery of the Russian economy this year. Such statement is made by the IMF in its World Economic Outlook Update for July 2017.

“The Russian economy is projected to recover gradually in 2017 and 2018, in line with the April forecast,” the IMF said.

“Inflation in advanced economies remains subdued and generally below targets; it has also been declining in several emerging economies, such as Brazil, India, and Russia,” the IMF added.

Fund experts earlier projected real growth of GDP in Russia at the level of 1.4% in 2017.

www.tass.com