World Bank predicts Russian GDP will decline by 2.7% this year

By bne IntelliNews June 1, 2015

bne IntelliNews -

 

The World Bank said on June 1 that it has revised its GDP growth forecast for Russia to -2.7% in 2015 and 0.7% in 2016. Previously in April, the bank expected the economy to contract by 3.8% in 2015 and 0.3% in 2016.

The positive revision of the forecasts was attributed to a more optimistic oil price development scenario based on an average oil price of $58 per barrel in 2015 and $63.6 per barrel in 2016.

The positive adjustment of oil prices is supporting the ruble exchange rate and a slightly faster retreat of inflation, says lead economist for Russia Birgit Hansl. The central bank is expected to pursue more rapid monetary easing, bring down borrowing costs and boost lending to businesses and households.

Both investment and consumption are expected to contract at a slower pace than previously expected. However, neither are expected to recover into positive territory until 2017. Investment recovery is contingent on a removal of structural problems and improvement of business and consumer confidence, as Western sanctions are expected to be phased out by the end of 2016.

The bank is optimistic that significant structural reforms will be part of the 2016-2017 budget proposal, as fiscal policy will follow a consolidation path.

Significant downside risks to the outlook remain, with the global oil market continuing to search for equilibrium and structural reforms still need to be supported by a concrete set of policy actions.

The  bank's press release did not address the current level of geopolitical risks. The analysis also did not appear to incorporate the latest decline across main economic indicators, such as a 4.2% y/y drop in GDP, 4.5% y/y decline in industry, 10% y/y contraction of retail trade, and a 13% y/y slump in real wages in April. The latest manufacturing PMI report also showed a deterioration of operational conditions in May.

The revised outlook is largely in line with the improved "optimistic" outlook of Russian authorities, adopted since March amid stabilisation of oil prices and the ruble, and the calming of the geopolitical situation under the Minsk-II ceasefire deal for East Ukraine. A more optimistic outlook was reinforced by Russia's GDP contracting by 1.9% y/y in Q1, less than expected.

The official GDP decline forecast for 2015 remains 3%, although the Finance Ministry now allows for a possible decline of 2.8%. In line with the prevailing "worst is over" mood, the ministry in late May also argued that the recession will not last longer then Q3 and forecast a 2.5% GDP decline in 2015.

World Bank June Projection Indicators

 

2012

2013

2014

2015

2016

Oil price (US$ per barrel, World Bank average)

105.0

104.0

97.6

58.0

63.6

GDP growth, percent

3.4

1.3

0.6

-2.7

0.7

Consumption growth, percent

6.4

3.9

0.9

-4.0

-1.1

Gross capital formation growth, percent

3.0

-7.1

-7.3

-10.0

4.5

General government balance, percent of GDP

0.4

-1.3

-1.3

-3.5

-2.8

Debt/GDP ratio for total government debt (gross), percent

12.2

14.3

16.4

18.3

17.1

Total External Debt, percent of GDP

20.8

24.4

23.8

27.5

21.1

Current account (US$ billions)

71.3

34.1

59.5

66.2

56.2

                          Percent of GDP

3.6

1.6

3.2

4.8

3.5

Trade balance (GNFS), bln USD

145.1

127.5

129.5

142.6

130.1

                           Percent of GDP

7.2

6.1

6.9

10.3

8.0

Capital and financial account (US$ billions)

-32.3

-56.2

-167.0

-102.4

-56.4

                           Percent of GDP

-1.6

-3.0

-8.9

-7.4

-3.5

Gross Domestic Product, RUB billion

62176.5

66190.1

71406.4

75972.1

80329.1

CPI inflation (average)

5.1

6.8

7.7

15.5

7.5

Exchange rate, annual average (Rub/USD)

31.1

31.8

38.0

55.1

49.6

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