The Ministry of Economic Development has lowered its forecast for GDP growth in Russia in 2013 from 2.4 percent to 1.8 percent. According to Interfax, this was announced by Deputy Minister Andrei Klepach.
In addition, the deputy minister also stated that the forecast for growth in industrial production has been reduced from 2 percent to 0.7 percent. The estimate for capital outflow has been downgraded from $30 billion to $70 billion, as well.
Overall, the economic growth forecast for 2014 has been downgraded from 3.7 percent to 2.8–3.2 percent. As detailed by RIA Novosti, the estimate for GDP growth has been reduced from 4.1 to 3.2–3.4 percent for 2015, and from 4.2 to 3.3–3.7 percent for 2016.
The Central Bank also expects the country's GDP to grow this year by no more than 2 percent. The regulator, in its July report on monetary and credit policy, noted that the growth of the Russian economy was restrained by the lowering of oil prices, the crisis in the eurozone that was limiting exports, and by other external factors.
In mid-August, the Ministry of Economic Development stated that they had revised data on economic growth in the first half of this year. The estimate has been reduced from 1.7 to 1.4 percent. By comparison, Russia's GDP increased 4.5 percent in the first six months of 2012.
Economic growth is slowing down against the backdrop of the accelerating capital outflow and the recession in industrial production. Notably, over the first six months of this year, the industrial output growth turned out to be zero, and the capital outflow amounted to $45–47 billion.
Chris Weafer, Macro Advisory:
The Ministry of Economic Development's revision does not come as a surprise. Optimistic economists had been hoping for a faster pickup in the second quarter of this year due to the base effect, but instead companies are scaling back investments because of uncertainties while retail growth is steady (at 4 percent), but not dynamic.
The big problem is that interest rates are too high (the Central Bank's benchmark rate is currently 8.25 percent), making it too expensive for both consumers and businesses to borrow and make long-term investments.
President Putin has indentified this problem and I predict there will be strong pressure on the Central Bank to bring down rates and possibly some government stimulus measures for growth to pick up in the second half of the year.
The major problem is that all of the political emphasis has so far been on short-term fixes rather than the overall structural weakness and poor investment climate of Russia's economy, as former Finance Minister Alexei Kudrin has been pointing out.
Right now oil prices are articially being kept up by short-term factors like instability in Syria and Egypt, but several long-term trends like shale gas and further oil extraction in Canada and Mexico will put downward pressure on energy prices.
Without genuine reforms that will improve the rule of law, cut red tape and reduce corruption in Russia, the government is living on borrowed time. On the other hand, if the price of oil does go down, we may finally see an acceleration of long-awaited economic reforms.
First published in Russian in Lenta.ru.
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