Page 29 - RUSRptOct18

The main reason behind the 2019 sharp downward revision is a VAT hike, which was pushed through by the government after President's Vladimir Putin inauguration along with an unpopular retirement age increase and oil and gas sector tax reform.
However, the ministry still counts on massive RUB8 trillion six-year spending extravaganza announced by Putin as part of his new May Decrees to push the economy above the structural ceiling of 1.5-2%, with GDP growth accelerating to 3.1% as of 2021.
Russia’s Economic Development Minister Maxim Oreshkin doubts that Russia's GDP growth in the third and fourth quarters of 2018 will exceed 1.9%. "We expect a slowdown in the first quarter of next year, indeed. But we do not expect any big positive surprises in the third and fourth quarters of this year. That is because of higher uncertainty, the growth of volatility on the financial markets... This is not the right background for acceleration of growth," the minister told reporters on the sidelines of the Eastern Economic Forum. "It is unlikely to be above 1.9% [GDP growth in the third and fourth quarters]," he added.
The decision to raise the retirement age in Russia will increase the GDP by 0.1 percentage points in 2019 and by 0.2-0.3 percentage points in 2020-2021, the central bank said in its report on monetary policy on September 13.
CBR plans for 2019 oil price collapse with three oil price scenarios through to 2020 . In a report on monetary policy, the central bank (CBR) improved its economic growth estimates for 2019-2021. The report includes three forecast scenarios: a baseline with oil prices at $55/barrel, an optimistic scenario where oil prices remain around $70/barrel, and a risky scenario where oil prices drop to $35/barrel. Planning for a $55 a barrel and $35 a barrel scenario in 2019 is a big deal, since it acknowledges what few other institutions seem to thus far: the US is on a collision path with Iran. As US-Iranian tensions escalate, oil prices will spike followed by large declines in demand due to political risks and economic slowdowns in key importer economies such as China. Russia has done well to insulate itself from price swings, but diplomatic efforts with Washington point to concerns over US policy on Iran. The upside and baseline forecasts are quite similar, while the downside of $35/barrel predicts a small recession in 2019 that Russia will exit by 2021. The report promises macroeconomic stability even if oil prices are halved. The new forecasts do not take into account the weakening of the ruble during August and September 2018, although the CBR believes recent depreciation to primarily stem from a broader emerging market sell off. Upcoming fiscal and structural changes—i.e. the VAT hike, pension reform, increased government investment, etc.—will begin to have a significant impact on growth starting in 2021.
29 RUSSIA Country Report October 2018 www.intellinews.com