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IMF Downgrades Russia Forecast
April 14, 2015 18:44

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The IMF has downgraded its Russia forecast despite the strengthening rouble and a rebound in oil prices.
In its latest edition of the World Economic Outlook (WEO), the Russian economy is expected to contract in 2015 by 3.8 percent, down from 3 percent it projected earlier.
Below is the list of highlights of the report:
§ Global growth forecast unchanged at 3.5 percent this year and 3.8 percent in 2016
§ Growth diverges: stronger in advanced economies, lower in emerging economies
§ Macro risks decreased, but financial and geopolitical risks increased
“Oil price declines will sharply slow growth for oil exporters, especially those that also face difficult initial conditions —for example, geopolitical tensions in the case of Russia.”
“Emerging market and developing economies also have an important structural reform agenda. These economies can reap productivity gains by easing limits on trade and investment, removing infrastructure bottlenecks (India, South Africa), and improving business conditions (Indonesia and Russia).”
In other countries (Brazil, India, and South Africa), reforms to education, labor, and product markets can help raise labor force participation and productivity. Finally, lower oil prices offer an opportunity to decrease energy subsidies and replace them with better-targeted programs, as well as reform energy taxation (including in advanced economies).
In many advanced economies, accommodative monetary policy remains essential to support economic activity and lift inflation expectations. There is also a strong case for increasing infrastructure investment in some economies and for implementing structural reforms to tackle weaknesses laid bare by the crisis, generate investment, and boost potential output. Priorities vary, but many advanced economies would benefit from reforms to strengthen labor force participation (Japan and the euro area) and overall employment levels, given aging populations, as well as measures to tackle private debt overhang.


“In many emerging market and developing economies, there is only limited macroeconomic policy space to support growth. In oil importers, however, lower oil prices will reduce inflation pressure and external vulnerabilities, and in economies with oil subsidies, the lower prices may provide room to strengthen fiscal positions. Oil exporters, on the other hand, have to absorb the terms-of-trade shock and face greater fiscal and external vulnerabilities. Those with fiscal space can allow public spending to adjust gradually to lower oil revenues. For others with some exchange rate flexibility, a depreciation would help the adjustment,” reads the report.

Author: Mikhail Vesely

Tags: Russian economy     

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