IMF sees Russia's GDP decline at 1.8% in 2016

By bne IntelliNews April 12, 2016

In its latest World Economic Outlook entitled "Too slow for too long", the International Monetary Fund (IMF) revises Russia's GDP recession in 2016 to 1.8%, down by 0.8pp compared with January's outlook and 1.2pp compared with its October 2015 report, with recovery to 0.8% GDP growth expected in 2017.

"We have revised the GDP for 2016 in Russia down relative to January because we have seen during 2015 a delay in economy turning the corner, with the second half of 2015 being weaker than expected and hence entering 2016 on a weaker footing," a panel of IMF officials told at a live press conference on April 12.

At the same time, they added that "clearly market conditions for Russia have improved, helped by the overall decline in global risk aversion, by the fact that the oil prices have rebounded, and by the fact that Russia made use of exchange rate flexibility as an adjustment tool".

The IMF envisages a return to growth in 2017, anticipating the economy to turn the corner at some point in the current year.

While the picture for emerging markets is quite diverse, severe economic conditions remain in Brazil, Russia, and a number of other commodity exporters, the IMF wrote in its World Economic Outlook published on April 12.

Russia, Brazil, and a small group of other commodity-exporting countries facing macroeconomic difficulties, experienced dramatic contractions in investment during 2015 of close to 20% coupled with declines in imports.

These developments, in addition to the weakness in commodity-related investment, reflect the significant exchange rate depreciation in many of these countries and the impact of sanctions in Russia, the IMF believes.

The international sanctions on Russia compound the effects of lower oil prices and structural weaknesses, following a GDP contraction of 3.7% in 2015.

The Fund sees geopolitical risks as staying elevated in 2016, with the situation in Russia and Ukraine remaining difficult and strife continuing in some countries in the Middle East.

The IMF is less optimistic on inflation than the Central Bank of Russia, expecting inflation to decline from 15.5% in 2015 to 8.4% in 2016, while the regulator sees the inflation rate at 6-7% for 2016 overall.

In its policy recommendation, the IMF believes that in response to the oil price collapse policymakers in Russia will need to implement an "ambitious medium-term fiscal consolidation, anchored in a rules-based framework".

In addition, boosting potential growth will require stronger governance and protection of property rights, lower administrative barriers and regulation, and greater competition and efficiency in capital allocation.

Recession in Russia and spillovers from it, as well as the effect of lower oil prices on oil-exporting countries, all maintain a very weak economic outlook for the Commonwealth of Independent States (CIS), the IMF notes.

Output in the CIS region is projected to decline further by 1.1% in 2016, with recovery expected in in 2017 at 1.3% GDP growth.

Ukraine's economy is projected to return to positive growth in 2016, supported by improving consumer and investor confidence, gradually rising real incomes, and a gradual easing of credit conditions.

In 2016, Ukraine's GDP is expected to bounce to 1.5% growth from 9.9% drop seen in 2015, and to expand by 2.5% in 2017.

Meanwhile, GDP in neighbouring Belarus is expected to contract by 2.7% in 2016 after 3.9% decline in 2015, to recover to slight 0.4% growth in 2017.

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