Friday, August 29, 2014

29/8/2014: Some Unpleasant Forecast Revisions for Russian Economy

Russian Economy Ministry updated its 2014-2015 economic forecasts. 2014 forecast for real GDP growth remains at 0.5%, a notch below 0.6% forecast by the Central Bank. The ministry lowered forecast for 2015 to 1%, from 2% previously.

Notably, the Ministry did not raise its GDP growth forecast for 2014, despite numerous recent comments by Ministry officials that they expect 2014 GDP to come in at closer to 1% growth.

Updated inflation forecast is for 7-7.5% y/y in 2014. This reflects an uplift of 1-1.5% on previous forecast (6%) and is 1.5-2% above the official CBR target. CBR own forecast is for 6% for 2014. Revisions in inflation forecast are down to impact of imports bans on food which is expected to add 1% to the inflation rate in 2014 and 0.5% in 2015. Furthermore, sales tax introduction in 2015 (on top of 18% VAT already in place) will add another 1% to inflation. Ministry 2015 forecast for inflation is now at 6-7% which is an increase of 1-2% on 6% forecast issued previously. CBR target for 2015 was 4.5%.

You can read more about GDP growth conditions, inflationary pressure and the impact of the imports ban in food sector here:

Analysts consensus forecast is for 0.3% GDP growth and inflation of 6.5% in 2014. The latest forecasts from the Ministry suggest that there will be serious revisions to the Budget for 2015.

Growth in retail sales for 2015 is forecast to fall to 0.5% (latest growth of around 1%), while fixed investments is forecast to increase by 1.5% (current rate is -2%). Ministry projects a nearly 8% drop in Russia’s imports this year, in line with 'normal' Russian economy's reaction to a growth slowdown and in a clear response in capital imports demand to higher CBR rates. Investment is forecast to return to growth of less than 1% in 2015. 

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