Russian economy to overcome recession in four years, ministry says

Russian economy to overcome recession in four years, ministry says
Russian CPI y/y vs m/m
By bne IntelliNews March 31, 2016

The Russian Ministry of Economic Development has revised its macro forecast for 2016-2018 with a new vein of optimism and prepared an upbeat forecast for 2019, Vedomosti reported on March 31. 

The oil price is expected to remain in the range of $40-$50 per barrel, and the economy will emerge from recession in 2017 with oil at $45, according to the new outlook. The decline of major economic indicators - wages, real income, investment, industry - will stop around the same period, it says. 

The forecast prepared by the team of minister Alexei Ulyukayev suggests that the economy will shrink by 0.5% in 2015-2018. But in 2019, despite the stagnation of oil prices, the growth rate will accelerate to 2.5% and compensate for the losses, the ministry believes. The scale of economic recession in 2016 is reduced to a symbolic 0.3%.

Inflation will slow to 5% by the beginning of 2020, while the capital outflow will decrease to $20bn and the ruble will strengthen to RUB56.7 per dollar.

The ministry's forecast contrasts sharply with the bleak prognosis offered by Natalia Orlova, chief economist at Alfa Bank, who expects four-year stagnation. "The best the Russian economy can hope to achieve in this period is the potential growth rate of between 0.5% and 1%," Orlova told bne IntelliNews

The electoral period is usually marked by an increase in social spending, severely curtailed in 2016. The population's income will fall by more than 8% in 2015-2016, the ministry now expects. Growth of real incomes and real wages will resume in 2017, but at the beginning of 2020 the indicators will still remain below the 2014 level, at 5% and 7%, according to the revised forecast.

The economy will not be able to overcome the effects of a four-year decline of investments by 2020, but the ministry increased the expected speed of recovery by almost 1.5 times in 2018-2019 to almost 5%. 

While companies have the resources there is no certainty, and the government should give a signal that the situation stabilised, Ulyukayev said earlier. "Business is waiting for the signal that it is possible to invest again," he said.

The ministry's outlook will become the basis for the federal budget, but last year the customary three-year plan was first suspended because of instability of the oil market. With the gradual improvement of the oil market, Russian officials said recently the government will from 2016, resort to one-year budgeting again. It will also abandon the budget rule benchmark setting the average oil price for capping expenditure levels.