Macroeconomic Projections By The Bank Of Russia: December 2016

Russia’s GDP to post growth

The Bank of Russia, in the summary of its December Monetary Policy Statement, said that it expects the Russian economy to “move into the black as early as 2017 Q1.” It expected the growth to be gradual and even. The central bank forecast that GDP (gross domestic product) growth in 2017 is expected to be low at 0.5-1.0% according to its baseline scenario. For 2018 and 2019, it expected the pace of growth to be in the 1.5-2.0% range.

The Bank noted that a high savings rate, supported by positive real interest rates, will lead to a rise in consumer demand. A fall in the debt burden, gradual easing of lending conditions, and a better view of Russia’s economic future will also help increase investments into the country.

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Various scenarios

The central bank held that an increase in crude oil prices, increase in revenue from foreign trade, and improved expectations regarding the country’s economic outlook “will lead to a more confident recovery of the economic activity than the one envisaged in the baseline scenario.” This may result GDP growth to be over 1% in 2017 and in the 2.0-2.5% range in 2018 and 2019.

On the other hand, internal structural factors related to the domestic demography, among others, can hurt economic output, regardless of an improvement in external factors. This may lead to economic growth slowing to the 1.0-1.5% range in the medium-term.

Inflation projections

The Bank of Russia expects inflation to slow down to its 4% target in late 2017. It cites “The restraining effect of domestic demand, moderate growth in producer prices and relatively stable exchange rate dynamics” as reasons which will help cool price rise in the country. The decline in inflation expectations would also be crucial in price rise declining to its target level in the medium-term.

The central bank that “high inertia inflation expectations” pose a major threat to the inflation target. Further, an increase in the planned government spending may also pose a threat to inflation. Understandably, the Bank said that if any of the risks to inflation materialize, it will be forced to pursue a tighter monetary policy than the one it expects in the baseline scenario.

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