May 21, 2015 6:31 pm
The Russian economy is set to contract by 3.4 per cent this year but will rebound in 2016, posting 0.2 per cent growth, the International Monetary Fund said on Thursday.
Ernesto Ramirez Rigo, the head of a two-week IMF mission to Russia, said the fund had revised upward its outlook for Russian economic growth and inflation on the back of improved economic data and the recent strengthening of the rouble.
“The authorities’ measures and the anti-crisis package have helped to stabilise the situation and along with that has come a more stable currency. And obviously with that stability has come a stronger confidence.”
The fund said it now expected Russian inflation to fall from its current level of about 16 per cent to 12.5 per cent by the end of the year.
The improved forecast echoes brighter predictions for the Russian economy from both the Moscow authorities and independent economists.
Last week, Russia’s Federal Statistics Service reported that the Russian economy had contracted just 1.9 per cent in the first three months of 2015 — a smaller drop than expected.
The rouble has also rebounded in recent weeks. After weakening to as much as 80 roubles to the dollar last December, the currency has now recovered back to 50 roubles to the US dollar, and is continuing to strengthen.Mr Ramirez Rigo said the rouble had been bound to experience some volatility after the Russian central bank switched to an inflation-targeting regime and allowed the rouble to free-float with limited intervention.
The decision to essentially abandon exchange controls was among a series of measures, also including a bank recapitalisation programme, that the Russian central bank took last year to stabilise the currency and financial sector following the introduction of sanctions by western governments against Moscow, a fall in the value of the rouble and the oil price plunge. The country’s foreign reserves have fallen from $500bn at the end of 2013 to the current level of just over $360bn.
In its report, the IMF praised the central bank and the financial authorities and said that the move to a free floating currency was initially unsettling for the rouble but has ultimately proved beneficial.
Despite the rosier outlook, both the IMF and other economists have warned that a further drop in the oil price, or renewed violence in eastern Ukraine could alter the picture.
“Within this outlook there are significant risks mainly posed by the oil prices, which clearly for Russia are very important, and the geopolitical tensions. But at the same time these are mitigated by large coffers,” Mr Ramirez Rigo said.
The IMF said it expected the Russian economy to grow in the medium term at an annual rate of 1.5 per cent, a reflection of Russia’s structural dependence on the oil price.
“It’s fair to say we all know investment should be faster, labour growth is not very dynamic and at the same time productivity growth has been lagging now for a few years . . . These drags on growth are all structural in nature,” Mr Ramirez Rigo said.
The article has been amended to say the IMF has been in Russia for two weeks not three months as earlier stated.
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