IMF inches Russian GDP forecast down to 1.1% in 2019

IMF inches Russian GDP forecast down to 1.1% in 2019
The IMF cut Russia’s growth forecast to 1.1% from the previous 1.6%, but growth is expected to recover to 1.9% in 2020.
By bne IntelliNews October 17, 2019

The International Monetary Fund (IMF) cut Russia’s growth forecast for the third time this year to 1.1% from the previous 1.6%, the fund said in its latest World Economic Outlook update for October 2019. The GDP growth is expected to recover to 1.9% in 2020.

Previous the IMF had forecast Russia’s GDP growth at 1.8% at the start of the year but then cut the forecast to 1.6% growth in April.

As reported by bne IntelliNews, this month the World Bank also downgraded Russia's outlook for the third time this year to 1% GDP growth in 2019.

GDP growth is still expected "to accelerate in the second half of 2019 on the back of monetary easing and faster public spending on national projects," the WB wrote in the ECA Economic Update for Fall 2019.

Most recently, following the slow start of the year, the Russian Ministry of Economic Development has also downgraded the economic outlook, expecting GDP growth of 1.3% in 2019.

The IMF notes that a slowdown in Russia and flat activity in Turkey is largely reflected in the subdued growth in emerging and developing Europe in 2019 overall. But the region is expected to grow at 1.8 % in 2019 and pick up to 2.5% in 2020. 

"In Russia, by contrast, growth has been weaker this year than forecast in April, but is projected to recover next year, contributing to the upward revision to projected 2020 growth for the region," the IMF believes.

Both the World Bank and the IMF highlight the dilemma currently debated by the government and the Central Bank of Russia (CBR). The liquid part of the sovereign National Welfare Fund will exceed 7% of GDP in 2020. This would create an opportunity for the government to invest part of the NWF in domestic infrastructure projects, as proposed by the Finance Ministry.

However, substantial domestic investments could make the economy more dependent on energy prices and heighten inflation risks, which is the argument of the CBR against unsealing the NWF.

The IMF argues that the authorities "should move toward a more growth-friendly composition of taxes and public spending while refraining from using the National Welfare Fund for quasi-fiscal activities." 

For the CBR, the "monetary policy can be eased toward a neutral stance if inflationary pressures continue to abate. To enhance the efficiency of credit intermediation, the authorities should continue to consolidate the banking sector while reducing the state’s footprint." 

The fund also reiterated that "further structural reforms are needed to boost potential growth, including measures to enhance competition, improve public procurement, and reform the labor market."


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