Page 25 - bne IntelliNews Russia Country report May 2017

After a cumulative contraction in 2015-2016 of 3%, the bank expects the Russian economy to “grow modestly in 2017 and 2018”, supported by a gradual recovery in oil prices and within the estimated longer-term potential growth rate of 1-2% annually.
Despite the recovery, investment activity has remained constrained by economic uncertainty and relatively high financing costs.
Nevertheless, the Russian ruble, has been stronger than oil prices alone would suggest, despite the concurrent replenishment of Russia’s international reserves, EBRD notes, attributing the strong currency to strong inflows of capital into Russia’s bond and equity markets.
Looking back at 2016, EBRD points out that Russia’s Eurobond issuances and syndicated borrowing increased significantly (close to $32bn in 2016 plus $1.75bn sovereign borrowing, compared with $12bn for the whole of 2015), but it still remains well below pre-2014 levels.
The EBRD welcomes the central bank’s policy of closing weaker banks to support financial stability.
While domestic demand remained weak in 2016, recovering household income and the stronger rouble in 2017 may reduce the trade surplus and support imports, the bank believes.
“A reversal of the recent recovery in oil prices is a major source of risk for Russia’s economy as well as for countries in Central Asia and the EEC region with close economic links with Russia,” EBRD’s latest outlook reads. Other risks include lack of business environment reforms supporting investment, geopolitical tensions and prolongation of sanctions.
The Russian economy will grow by 1.3% in 2017 and by 1.4% in 2018 and 2019, the World Bank projects in its latest Russia Economic Report “F rom Recession to Recovery ” presented on May 23. The outlook is line with the recent update of Russia’s GDP growth outlook to 1.2-1.5% range by international observers such as Moody’s, the EBRD , and the IMF . At the same time, the WB downgraded the outlook slightly from 1.5% for 2017 and 1.7% for 2018 that it projected in its previous report published in November. The domestic outlook is more optimistic, with Economic Development Minister Maxim Oreshkin saying this month that GDP growth in the second half of the year may exceed 2% in annual terms.
Moody's international rating agency expects Russia’s GDP to grow
annually by 1.5% in 2017 and 2018, it said in a press release on May 22. "Moody's forecasts that real GDP growth will increase by 1.5% per year in 2017 and 2018, with private consumption and investment spending supported by gains in household real incomes and gradually easing monetary policy. Still, an ageing population is among the constraints expected to prevent Russia's potential growth from expanding in the absence of fundamental structural reforms," the agency said. Moody’s expects that the general government deficit will narrow to 1.8% of GDP by 2018 from 3.7% of GDP in 2016, which will be driven mainly by a reduction of the deficit at the federal level, while other budgets, including the regions, are expected to be broadly balanced.
25 RUSSIA Country Report May 2017 www.intellinews.com