EC lowers Russia's "rather bleak" outlook to 1.2% GDP decline in 2016

By bne IntelliNews February 4, 2016

The European Commission (EC) has worsened its recession outlook on Russia for 2016 from 0.5% GDP decline to 1.2% contraction, with a return to "very weak growth" of 0.3% only in 2017, according to the Winter Outlook published on February 4.

The EC joins an array of institutions and analysts that revised Russia's outlook downwards in 2016 due to a renewed decline in oil prices, while Russia has yet to officially revise its 2016 macro guidance from 0.7% GDP recovery expected.

The EC believes that the 2015 recession caused by the slump in oil prices, sanctions and pre-existing structural bottlenecks, has recently bottomed out. However, the outlook has deteriorated since the autumn due to oil's continued decline and the prolongation of sanctions.

Real GDP is estimated to have contracted by 3.7% in 2015 due to a sharp decline in private consumption and investment, facilitated by elevated borrowing costs, weak economic confidence and rising inflation, the EC reminds.

The EC data seems slightly outdated, as it cites moderation of third-quarter data as a sign of the recession bottoming out, without reference to the decline in investment and consumption recently reported for the end of 2015.

Nevertheless, the near-term outlook remains "rather bleak", much so that “risks of protracted stagnation now prevailing over prospects of a gradual recovery”, due to a significant downward revision of oil price outlook, sanctions' extension until July 2016, weak business sentiment, persistently high borrowing costs, and a likely lack of structural reform momentum ahead of elections, the report sums up.

Further more-than-expected decline in oil prices and the prolongation of the sanctions “beyond summer 2016” are seen as main risks to the outlook, which might indirectly indicate that the EC does not consider the prolongation as a base-case scenario.

Related Articles

Multilateral lender IIB to place its inaugural transaction in Czech koruna

Moscow-based development bank International Investment Bank (IIB) has priced its denominated private placement transaction with three-year floating rate notes in koruna of CZK501mn, the bank said in ... more

Latvia to probe tram tender awarded to Russian-controlled Railvec

Latvia’s state security service, the Constitution Protection Bureau (SAB), plans to scrutinise a tender to deliver trams to the country’s second-largest city won by a Russian company with ties to ... more

Finland gives final nod to construction of Nord Stream II

Finland has issued a second and final permit for the construction of the controversial Nord Stream II pipeline that is to pump gas from Russia directly to Germany via a Baltic Sea route, the Regional ... more

Dismiss