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Ford drives hike in car production in Romania
5 days ago
The Ministry of Economic Development worsened Russia's short-term economic outlook as expected due to volatility on emerging markets, worsened sanction risks, faster capital outflow and rising cost of debt.
Now the GDP forecast for 2018 was clipped from 1.9% to 1.8% growth, with 2019 outlook down from 1.4% to 1.3%. Target ruble exchange rate to US dollar was hiked from RUB60.8 to RUB61.7 for 2018 and from RUB63.2 to RUB63.9 for 2019 due tougher Fed policy, Turkish crisis, and the sanction risks.
The ministry also more than doubled capital outflow forecast from previous $18bn to $41bn and last week worsened inflation forecast from 3.1% to 3.4% for 2018. In August CPI inflation already reached 3.1% year-on-year.
This is the second time the ministry has downgraded the outlook in less than three months. In June it revised its 2018 GDP growth forecast down to 1.9% from the previous 2.2% outlook, while expecting 2019 economic growth to slow down to 1.4%.
The main reason behind the 2019 sharp downward revision is a VAT hike, which was pushed through by the government after President's Vladimir Putin inauguration along with an unpopular retirement age increase and oil and gas sector tax reform.
However, the ministry still counts on massive RUB8 trillion six-year spending extravaganza announced by Putin as part of his new May Decrees to push the economy above the structural ceiling of 1.5-2%, with GDP growth accelerating to 3.1% as of 2021.
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