Wednesday, August 8, 2012

8/8/2012: Updating 2012-2017 forecasts for Russia

Updating my outlook for Russian economy:

First a table summarizing my outlook and IMF forecasts for key macro variables (note: IMF forecasts are as of July 2012, updating WEO database from April 2012).

Second, two significant trends that will dominate Russian macroeconomic themes in near- and medium-term future:

Both charts above are based on IMF data and projections.

The key to both is understanding that the underlying capital dynamics suggest strong capital investment contribution to the GDP and that much of this will be driven by the private sector. This implies strong growth potential in core capital equipment, construction and manufacturing sectors.

However, my estimates of public investment are above those for the IMF, based on two factors:

  1. Last Presidential elections have been dominated by the rhetoric concerning modernization and re-structuring of key Russian sectors and the economy overall. Coupled with accelerating depreciation of infrastructure stocks, this suggests elevated public investment in years to come.
  2. Recent portests against the Government have clearly been met with a complex response that includes strong recognition by Moscow that accelerated development of the quality-of-life infrastructure and structural reforms in the economy cannot be postponed. This too suggests that the Federal authorities will likely accelerate public investment.
As the result, my projections for private investment remain in-line with those by the IMF, but public investment projections are likely to be ahead of those by the IMF by some 1-1.5% per annum in 2013-2014, rising to 2% over IMF forecast post-2015.
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