Page 4 - RusRPTApr20

as a result of the oil price collapse and the weakening global economy caused by the corona pandemic.
Russia went into 2020 with an expectation of 1.9% growth, but already most of the leading economic think tanks have downgraded the outlook to between -1% and -1.5% contraction. Other economists are predicting even steeper falls of well over 2% and a 5% contraction has also been mentioned. However, with only 1,000 cases of coronavirus (COVID-19) reported as of March 26 clearly its still very early days in Russia’s epidemic making accurate forecasting nigh impossible.
Oil prices have also tanked and will hurt the economy. According to market expectations, the average price of Urals oil this year will be $39 (the sour Ural’s blend typically costs $2 less than Brent), 40% lower than last year, and global economic forecasts have been clearly lowered.
According to BOFIT's new forecast, Russia's GDP is expected to contract by 1% this year and return to moderate growth next year. Increasing public spending supports the economy. However, in the current highly uncertain situation, the projection involves exceptionally high risks. Russia's economic performance could be significantly weaker than expected if the interest rate pandemic continues and oil prices continue to fall.
Public spending is projected to increase by 6-7% per annum (in nominal terms) in the approved budget framework for 2020-2022. Despite the fall in oil prices, the Russian government is expected to stick to its planned budget expenditures. With current oil price assumptions, Russia's public finances will turn into a deficit this year, but the deficit can be financed from oil reserves raised in the National Welfare Fund, which held RUB12.1 trillion ($157bn) or 11% of GDP as of March.
Given Finance Minister Anton Siluanov forecast a RUB3 trillion hole in the budget this year (more than the RUB2 trillion hole left by the 2014 crisis) then there is enough in the reserve fund to cover the deficit for at least three years without the need to cut spending – and that is before MinFin raises taxes. Siluanov claimed Russia has enough in reserves to weather a decade of low prices.
Private consumption is expected to contract this year due to weaker economic developments and the effects of the coronavirus. The weakening of the ruble may accelerate inflation and thus reduce purchasing power, which had only just started to recover in the fourth quarter of 2019 after six years of stagnation. Consumption is expected to recover again next year.
Private investment is expected to decline this year as a result of significantly lower oil prices and a weaker economic outlook.
Exports are expected to decline further this year due to weakening global economic development and pick up next year as demand recovers gradually. Imports are also expected to shrink this year, due to the weaker ruble and lower demand. Russia's current account is expected to remain slightly in surplus, albeit with a sharp decline from around $70bn in 2019 to $45bn this year.
4 RUSSIA Country Report April 2020 www.intellinews.com