Source: Ministry worsens Russia’s 2018 GDP growth outlook to 1.9%

MOSCOW, Jun 28 (PRIME) -- The Economic Development Ministry has worsened its 2018 gross domestic product (GDP) growth forecast to 1.9% from 2.1%, and for 2019 to 1.4% from 2.2%, a government source told reporters late on Wednesday.

The ministry is likely to revise the estimate for January–March to 1.3% from 1.5%, while the estimate for April stands at 2.2% and for May 2.1%. “Now we expect the GDP of 1.9% this year,” the source said, adding that industrial output revision and for other estimates of small and medium-sized enterprises for 2017 may result in GDP growing over 2%.

Still, geopolitical factors are a threat to the Russian economy, including capital flight due to the U.S. Federal Reserve System’s increase of rates and trade wars.

The year of 2019 will also be difficult from the point of view of adaptation to changes in macroeconomic conditions, including a higher value-added tax and rising inflation, which will undermine household incomes and consumer spending, and prompting the ministry to revise the GDP forecast for the year, the source said.

The ministry sees an average annual oil price at U.S. $69.3 per barrel in 2018 and at $63.4 per barrel in 2019, while the price may gradually fall to $53.5 per barrel by 2024, the source said.

Capital outflow may stand at $25 billion in 2018, down from the previously expected $33 billion, and it may slow down close to zero by 2024 which will help boost the share of investment in Russia’s GDP, the source said.

The ministry also worsened its estimate of fixed capital investment growth for 2018 to 3.5% from 4.8%, and in 2019 to 3.1% from 5.6%. Still, the government’s measures to increase the share of investment in GDP should push the growth rate up to more than 6% starting from 2020, and help GDP growth to exceed 3% from 2021–2022, the source said.

Expectations of the industrial output in 2018 were also raised to 2.5% from 1.7%. The ministry does not expect it to dip below 2% in the three coming years.

But Russia’s real wages may increase to 6.3% in 2018 and plunge to 1% in 2019 due to a slowdown of economic activity and rising inflation.

The source said that the increase of value-added tax to 20% from 18% will add 1.2 percentage points to inflation, which is expected to amount to 4.3% in 2019 and to 2.9–3.1% in 2018.

The ruble may stand at about 62 per U.S. dollar as of the end of 2018 and slightly fall to 63–64 rubles as of the end of 2019.

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