- September 24, 2014
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Russia’s economy in the next two years will be in a state of stagnation, according to a World Bank report.
The main reasons for this – the geopolitical tensions caused by the deterioration of relations with Ukraine, the lack of structural reforms and economic policy uncertainty.
In the state of the economy and financial system of the country negatively affect the mutual approval of the West and Russia, caused by the Ukrainian crisis, as well as capital flight from Russia.
The Russian economy is operating almost at full capacity, the report said the World Bank, which results in three scenarios of economic development of the country.
The optimistic scenario assumes growth rates of 0.9% in 2015 and 1.3% in 2016. In a worst case Russia expects recession.
From stagnation to recession
In the first half of 2014, the Russian economy experienced stagnation, and now teeters on the brink of recession, says World Bank report, entitled “The uncertainty of economic policy limits the horizon of growth”.
The World Bank predicts economic development of Russia in three possible scenarios – pessimistic, optimistic and base.
The most negative option involves the growth of tensions between Russia and the West.
In this case, compared with the 2014 year, when the growth was 0.5%, the economy will shrink by 0.9% in 2015 and 0.4% in 2016.
The pessimistic scenario forecasts inflation of 8.0% in 2014 and 2016. The interim 2015 – 10,0%.
In the pessimistic scenario, the state consolidated budget will worsen, and 2015 it will be executed with a deficit of 2,8%.
Introduction of new sanctions will lead to a reduction in foreign direct investment and net capital outflow will accelerate.
“As a result, in 2015 is expected maintain substantial deficit capital account and financial instruments at the level of 82.3 billion. dollars “, – the report says.
The optimistic scenario , in which you can count on a slight economic recovery, it is possible in the case of reduction of geopolitical tensions and the lifting of all sanctions by the end of this year. then the growth rate will rise from 0.5% in 2014 to 0.9% in 2015 and 1.3% in 2016.
Optimistic scenario also provides for 8.0% inflation in 2014. In 2015, it may be reduced to 6.0%, due to a possible lifting of the ban on the import of food and less weakening of the ruble.
In 2016, we can expect a 5.0% inflation rate, which coincides with the target of the Bank of Russia.
The optimistic scenario would be possible if the end of 2015, the country will return interest to structural reforms.
The projected growth at baseline scenario will be half a percentage point in 2014 and 0.3% and 0.4% in 2015 and 2016.
For comparison, the GDP growth forecast for the euro area was 0.9% in 2014, 1.4% in 2015 and 1.8% in 2016. Projected global indicators – 2.6, 3.2 and 3.4 %, respectively.
World Bank predicts a small increase in world oil demand. Its price in 2014 will be $ 103 per barrel and is expected to reach $ 100 per barrel in 2016.
The Bank of Russia let the ruble float freely since January 2015, says the World Bank. By this time, the Russian central bank will complete its transition to inflation targeting and refrain from intervention in the foreign exchange market.
The volume of Russia’s international reserves should remain largely unchanged and will determined by the fluctuations of the dollar against the euro.
Some weakening of the ruble and the effect of Russia’s ban on imports of food will remain until the end of the year high inflation pressures.
Inflation, experts believe the WB, before the end of the year to reach 8.0%, exceeding the target range of the Bank of Russia in 6,0-6,5%.
In 2015, the inflation rate may be reduced, but to accelerate the indexing of tariffs for public utilities. The consumer price index will fall to a level of 6-7%, and closer to the 2016 target of the Bank of Russia.
How to revive the economy
In 2014 – 2016 years the economy will be in a state of stagnation, unless structural reforms, the World Bank said in a report.
For the remainder of 2014 the Bank of Russia will not intervene in the market, as the ruble against the currency basket remains within the target range of
Structural reforms, private investment and increase consumer confidence will ensure economic growth. We are talking about industry reforms – health, education, transport, as well as the reform aimed at improving the efficiency of spending in the regions.
Without reforms, investment demand will remain weak, import substitution will have a limited impact, as well as increasing budget expenditures, which is designed to encourage investment. However, it reforms the World Bank experts are not watching.
In order to revive the economy, according to the report, Russia needs a predictable economic conditions and new development model based on diversification.
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