By Andrei Skvarsky.
Investment bank Renaissance Capital believes the Russian economy will remain on last year’s downward course in 2019 but will be very much on the rise again in 2020.
Gross domestic product is likely to keep increasing in 2019 but at a slowing pace, according to RenCap.
However, growth for 2020 would be double that for 2019, in which case 2020 would be the best of Russia’s past eight years, the Moscow-headquartered bank’s chief economist for Russia and the Commonwealth of Independent States, Oleg Kouzmin, said at a media event in Moscow.
As key RenCap projections for 2019 go, GDP growth would slow down to 1.2 per cent.
Consumer demand and investment demand would also show slowing growth, according to Kouzmin, who blamed this on a value-added tax rise as from January 1, 2019.
Consumer demand would edge up by 1.7 per cent and investment demand by 1.5 per cent, he said.
Inflation would close at 4.7 per cent this year, which is above the policy target, and the rouble would drop five per cent to 66.3 per dollar, Kouzmin said, arguing that these negative trends were unlikely to have a dramatic macroeconomic effect.
However, things would reverse in 2020, RenCap expects. GDP would grow 2.4 per cent compared with a Bloomberg consensus projection of 1.7 per cent.
Besides, Kouzmin forecast, the discouraging effects of the 2019 VAT increase on consumption and investment would fade away by 2020 and both consumer and investment demand would rebound to about 3.5 per cent by the year end.
Inflation would fall to 4 per cent.
The retirement age rises under a 2018 law would result in between 0.2 and 0.3 percentage points being added to the projected 2020 economic growth, Kouzmin said.
He saw the anticipated 2020 upturn as a cyclical and structural recovery.
However, he added there was a risk of this projected upward movement being hindered by international developments, “including lower investor appetite for emerging market assets, and especially potential new [Western anti-Russian] sanctions, which are now an ever-present reality”.
Of all the potential US new sanctions against Russia, it is those against Russian state debt instruments that would be particularly damaging, according to RenCap.
The bank thinks potential sanctions in general might cause non-residents to withdraw up to 5 trillion roubles (about $75bn at the current exchange rate) from Russian financial assets (both state debt instruments and corporate securities).
Kouzmin made the observation, however, that Russia’s vulnerability to sanctions means that the country remains integrated into the world economy while complete immunity against them would mean the nation’s global economic isolation.
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