Economist Yaroslav Lissovolik — about what awaits the Russian economy in the coming year
Past 2016 can be described as a year of adaptation of Russian economy to low oil prices after a volatile 2015. Last year marked a significant stabilization of the ruble exchange rate, which was accompanied by a massive slowdown of capital outflow — net outflow of private sector capital decreased several times compared to more than $50 billion in 2015. All these factors contributed to a sharp slowdown in inflation to record low levels at 5.4% after a more than 15% in the middle of the previous year.
The growth of the Russian economy most likely will remain in positive zone for 2017, which will be facilitated by several factors. First of all, the easing of monetary policy by the Central Bank will maintain its lending activity. In addition, the stabilization of oil prices and the decline in capital outflow in the period of 2016-2017 years can provide more opportunities for recovering the investment. With oil prices at $55-60 per barrel, GDP growth may reach 1.5%, while a pullback to the $45-50 per barrel will give a slight positive growth rate of 0.3–0.5%.
In conditions of low economic growth it is hardly possible to expect a significant increase in consumer spending and real incomes. The main positive factors for income in the current year will be the strengthening of the ruble, lower inflation and allocating additional revenues to Finance the social sphere. In General, for 2017 we can expect the release dynamics of Russia’s GDP into positive territory, reducing inflation to less than 5% and the strengthening of the ruble against the background of further decline in capital outflow compared with the levels of the last few years. The beginning of the year, which was marked by the penetration level of 60 rubles per dollar, is fraught with repetition of the seasonal pattern of strengthening of the ruble in the first half of the year, which has been the last few years. When you reach $60 per barrel the price of oil and the preservation of positive trends in capital flows the ruble may show strengthening to 55 rubles per dollar in the first half of the year.
In 2017 the main macroeconomic challenge for Russia may be the exhaustion of the Reserve — at least that is the basic scenario that the Ministry of Finance in the budget 2017. Continuing fiscal imbalances will require a widening of sources of funding budget gaps. Agreement with the OPEC countries that are also experiencing budget difficulties, was aimed at including and to mitigate budgetary problems of the countries — exporters of oil. Now the focus of 2017 will be the ability of these countries to meet their targets/commitments — historically OPEC countries is extremely hard given discipline.
Another key factor for the Russian economy will be monetary policy of the fed — tightening rhetoric and plans to raise the key rate up to three times for 2017 poses risks the return of increased volatility in emerging markets. In these circumstances, the Russian Central Bank will act cautiously in lowering its key interest rates in 2017, possibly reducing it by 1.0 to 1.5 percentage points, which corresponds to the size of the rate reduction in 2016.
So what is the script going economic development in 2017? According to the scenario post-crisis in 2010, when a growth rate of 4% by many was regarded as a bitter disappointment compared to the explosive growth in post-crisis 1999? Or the current year will be a continuation of the painting 2015-2016, when contrary to the predictions of the imminent economic recovery in Russian GDP continued to “dive” down under the influence of unfavorable external environment? At the moment of a positive start to the new year for financial markets (unlike previous years) gives hope for some intermediate scenario in which growth does not exceed 1%, remaining nevertheless extremely vulnerable to external shocks.
The author is chief economist at Eurasian development Bank
The opinion of the author may not coincide with the position of the editorial Board