Page 14 - RusRPTApr20

collapsed on March 6 closely followed by an escalating coronavirus (COVID- 19) pandemic that has brought the global economy to a standstill will hurt the Russian economy.
As bne IntelliNews reported after crunching the numbers Russia’s macroeconomic fundamentals are strong, but Russia Inc will not escape unscathed. Finance Minister Anton Siluanov said last week that the virus- related slow down will blow a RUB2 trillion hole in the budget and growth will slow to at least 0.5% this year.
However, with over RUB10,000 trillion in the National Welfare Fund (NWF) the ministry can fund this sort of budget deficit for the next five years. Siluanov claims the government can cover the budget deficits that result from $30 oil prices for as long as a decade.
Former Finance Minister and Audit Chamber head Alexei Kudrin, who is a widely respected authority on Russia’s economy, warned that if oil prices fall and stay low then the slowdown will be deeper and longer.
BOFIT calculates that the economy will contract by 1% this year,” due to notably lower commodity prices and a weakened outlook for the global economy. We expect Russian GDP to return to moderate growth next year.”
The BOFIT prediction tallies with the conclusions of other economists. Wiiw came to a similar result in a forecast it released last week for the whole Central and Eastern Europe (CEE) region and commented that public health crises tend to be deeper than financial crises but don't last as long.
JP Morgan also said that it was expecting a 24% contraction for the US economy in the second quarter, but that would followed by a robust rebound in the third quarter of 8% and a more gradual recover thereafter, assuming the coronavirus burns out in the summer months.
BOFIT pointed to the Russian plans to hike public spending as a plus for Russia’s growth and Siluanov says there are no plans to stop spending plans for the 12 national projects that will consume a large part of the public spending.
But most of the forecasts are currently assuming that the virus will burn out after about six months. China was first into the epidemic, which appeared in Wuhan province in January and is now seeing infections rates fall three months later. But the virus has already mutated into a second “more aggressive” strain and could mutate again into a more durable form.
“In the current situation risks are exceptionally large and Russia’s economic development can turn out considerably weaker if the global uncertainty caused by the corona pandemic is prolonged. Given the unlikely prospects for major structural economic reforms, Russia’s longer-term growth potential remains moderate,” BOFIT said in its forecast.
Falling oil prices undermine Russia’s budget
The first whammy has been the collapse of the oil prices, which reduce tax revenues and force the Ministry of Finance to rely on the NWF to top of the budget.
The average price of Urals-grade crude oil in March has been around $37 a barrel, or about 40% lower than the average price in 2019, BOFIT reports.
“The current market expectation is that oil averages a price of roughly $39 a barrel this year, and then a gradual rise to $45 a barrel in 2022. Forecasts for China and the global economy this year have also been generally reduced on the negative impacts from the coronavirus pandemic,” BOFIT said.
14 RUSSIA Country Report April 2020 www.intellinews.com