Russian economic growth may accelerate

Russia’s economy is expected to gain some traction this year, propelled by fiscal stimulus, rising incomes and a more accommodative monetary policy—all of which should support domestic activity, FocusEconomics says in its report and sees growth accelerating to 1.8% this year and to 1.9% in 2021. Among the former USSR republics, Russia’s economic growth in both 2019 and 2020 is the lowest.

As experts note, there has been a tendency lately to gradually increase public spending commitments, and these could eventually erode Russia’s very strong fiscal position. The budget policy is set to ease hence this year’s expenditure plan will likely increase by at least 0.6-0.7% of GDP, some further 0.3% of GDP could be invested locally from the National Wealth Fund. This should positively affect both consumption and investment growth even with some potential offsetting factors from growing imports.

Risks to the outlook remain elevated, however, especially with regards to the volatile external environment, further delays to the government’s infrastructure investment program and the coronavirus outbreak. Most pessimistic experts see 2020 growth at just 0.7%, whereas most optimistic panelists see it at 2.6%.

According to Dmitry Dolgin, chief Russia economist at ING, “2019 was a year of strong financial markets and weak economic growth in Russia, and even before the coronavirus outbreak it seemed that 2020 could bring the opposite result. While the fiscal stimulus of 2020 may assure some improvement in local state-driven consumption and investment demand, the resulting pick-up in imports may erode the ruble’s fundamentals and limit the scope for monetary policy easing because of higher inflationary risks. Meanwhile, the said virus emergency is the new factor of uncertainty for economic and market forecasts, as it may lower Russia’s exports of goods and services in both real and nominal terms.”

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