The World Bank in its latest economic report on Russia, has revised the GDP growth forecast for this year downwards from previous 2.3% to 1.8%, while in 2014 economic growth is seen accelerating to 3.1%.
The WB, similar to IMF this week, believes that Russian economy seems to be growing close to its capacity, constrained by weak investment activity and tight labor market. 2014 growth prospects are largely dependent on Eurozone recovery, as well as investment activities associated with recently announced large off-budget state projects.
The downside risks are exports remaining depressed should the global demand recovery be further delayed. Seizing of the quantitative easing policies (particularly in the US) will influence Russia negatively through lower oil prices, restricted access to capital markets, and higher capital outflows.
Main factors behind Russia’s current slowdown are structural and cyclical. Cyclical factors stem from Russia’s dependence on commodity price volatility. Structural challenges include non-competitive sectors and markets, and operating close to current capacity limit.
This week, the IMF for the second time this year, cut the GDP growth forecast for Russia in 2013-2014. GDP is expected to increase by 1.5% in 2013 vs. June’s 2.5% forecast and by 3% in 2014 vs. previous 3.25% forecast.
In the revised GDP forecast, the IMF commented that Russia is close to its full output potential, with historically low unemployment and capacity utilization at peaking pre-crisis levels. The growth is slowing down, while the risks’ balance is becoming unfavorable due to possible internal and external shocks.
The IMF urged to vigorously carry out structural reforms, especially on the supply side. The fund also stressed the consistency of the oil price-based budget rule that need to be strengthened as means of limiting the spending.
In the end of August, Russia’s EconMin revised the GDP forecast for 2013-2016. The forecast for 2013 was revised for the second time to 1.8% from 2.4% and the original 3.7%. The negative revision was expected given the worse-than-expected GDP results of Q2 and H1.
Russia’s EconMin Alexei Ulyukaev most recently estimated the GDP growth at 1.5% y/y in Jan-Aug 2013, inching up from 1.4% y/y seen in H1/13 and Jan-July. Industrial production did not grow in Jan-Aug, while manufacturing declined by 1.2% y/y. Ulyukaev also stressed that investment continues negative dynamics. The only positive dynamics are seen are due to consumer spending. Much of this is related to incomes in the public sector, which is also under increased pressure.
In August alone GDP growth is estimated by the EconMin at 1.6% y/y, however, seasonally adjusted the growth is flat and point to continuous stagnation.
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