Russia’s 2019 GDP growth will be smaller than predicted

The World Bank reduced further its 2019 GDP growth forecast for Russia to 1% in the new Europe and Central Asia Economic Update. This compares to 1.2% projected in June and 1.4% in April and it is not significantly below the 1.3% forecast of the EconMin. The bank expects slight acceleration of growth in H2 2019 after the weak H1 (+0.7% y/y) on the back of easier monetary policy and public spending on national projects. The forecast for 2020 was reduced marginally to 1.7% from 1.8% and the one for 2021 was preserved at 1.8%. This is worse than government forecasts to raise growth above 3% in 2021 on the back of additional fiscal spending and structural reforms, but the World Ban is not alone in its doubts about the medium-term potential of the economy.

The report notes global trade tensions and possible expansion of sanctions as key risks going forward. Growth of household lending also poses risks, although it is likely to be contained by CBR measures, according to the WB. The report also cautions that large domestic investments out of the National Wealth Fund can make the economy more dependent on energy prices and increase inflation risks, which basically supports the CBR opinion on the issue.

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