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Ministry of Economic Development Predicts Economic Fall
September 29, 2014 22:02


Russia’s economy will fall by 0.6% next year, the prices will rise by 7.6%, and the annual average dollar rate will make up 40 rubles. This will be possible if oil prices fall to $ 91 per barrel, as it is clear from the final version of the macroeconomic forecast of the Ministry of Economic Development read by Russian Business Consulting.

The May version of the macroeconomic forecast contained the stress test of the economy for the fall in oil prices which predicted GDP growth by 0.6% in 2015. The macroeconomic forecast of the Ministry of Economic Development was sent to the Ministry of Finance on Wednesday evening. This was preceded by three days of intensive discussions of options of economic development in the government for the next year: it was discussed at the meetings on the issues of liquidity of the banking system and on the preparation of monetary policy with the Prime Minister Dmitry Medvedev on Monday, at the budget meeting on Tuesday and at the meeting on economic issues on Wednesday.

The authorities assume that geopolitical tension will decrease, which will “allow Russia to both return to the international capital markets and reduce the sectoral sanctions imposed against the FEC, defense companies and engineering sector”, according to the source of RBC in the financial and economic block of the government familiar with the discussion of the options at the meeting with the Prime Minister. But “it is clear that we should also consider the scenario that will take the deterioration of these conditions into account” - the official says.

“This is an internal discussion, and it is not necessarily connected with the main goal of our forecast, being a basis of the budget in the medium term” - he said. According to him, only regulated tariffs may be corrected before the introduction of the budget to the State Duma on October 1. The stress scenario was included in the final version of the macroeconomic forecast of the Ministry of Economic Development. It is called not “Plan B”, as one might expect, but “Scenario A” in the document. It tests the economy for the deterioration of the situation in the global economy leading to a stronger decline in oil prices, the document says.

According to the scenario the average annual price of Urals oil will reduce to $ 91 per barrel in 2015, in 2016-2017 it is expected to stabilize at $ 90. It is expected that the prices will fall also in other commodity markets (gas, metals, fertilizers). As a result, export earnings will fall by $ 36-45 billion per year in 2015-2017 years, compared to the basic forecast, according to which the budget is made up. Under these conditions the weakening of the exchange rate is probable - up to 40 roubles per dollar in 2015. A smaller profit of exporters, on the one hand, and the rise in the prices of imported capital goods on the other hand, may lead to the reduction in investments by 3.5% in 2015.

The weakening of the exchange rate will have negative influence on consumer prices, inflation in 2015 will rise up to 7.6%. The decline in consumer confidence, in its turn, will reduce the volume of retail trade turnover by 2.3%. In this case GDP will be reduced by 0.6% in 2015, rather than grow by 1.2%, as it was suggested by the basic forecast. In 2016-2017 the restoration of growth is expected at the level of 1.7-2.8% of GDP.

Author: Anna Dorozhkina

Tags: Russian economy     

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