THE World Bank has cut its forecast for Russian economic growth this year to 4% from a previously estimated 4.4% as a result of an expected slowdown in the U.S. and the European Union, a decline in oil prices and the euro-zone debt crisis. The bank expects Russia’s GDP to grow 3.8% in 2012. Its 2011 forecast is more pessimistic than the Russian Economy Ministry’s estimate of 4.1% growth this year. The ministry predicts 3.7% growth in 2012. However, the World Bank still expects Russia to grow faster than the global economy as a whole, as global GDP growth is now projected to slow to 2.8% in 2011 before firming up to 3.2% in 2012.Aside from higher budgetary spending, the main risks for Russia lie the outside the country. Relatively high oil prices and low unemployment will help sustain robust growth in domestic consumption, which, in turn, will support overall growth during the second half of 2011.The bank notes that although “Russia’s short-term economic and fiscal situation remains favorable because of high oil prices with an almost balanced budget this year,” the balance of macroeconomic risks “has shifted toward an uncertain growth path as inflation pressures subside and external risks rise sharply.” The bank predicted Russia’s budget will be balanced in 2011 but will show a deficit of 1.6% of GDP in 2012.
However, significant downside risks are associated with global demand and highly volatile oil prices and new expenditure pressures from the planned modernization of the army, spending on infrastructure, and additional social spending, especially during the election period. The balance of payments position is expected to deteriorate towards the end of 2011, while capital flows are likely to remain volatile, reflecting increased global uncertainties. The bank expects surplus on the external current account to amount to about $67 billion in 2011, about 3.8% of GDP, and then to deteriorate to $21 billion in 2012, or 1.1% of GDP. Unemployment is expected to remain below 7% but a further reduction in unemployment will be slow.
The inflation rate may drop to 5 percent to 6 percent next year from a forecast 7 percent to 7.5 percent in 2011, according to the ministry. Russian economic growth may slow more than previously forecast next year as oil prices stagnate and the government uses its energy revenue this year to rebuild the nation’s sovereign wealth funds. The ministry revised down its growth forecast to 3.5 percent in 2012 from the previous estimate for a 3.9 percent increase. Practically all of the increased revenue from higher oil prices is going to the Reserve Fund and the National Wellbeing Fund instead of toward boosting expenditures. The weaker growth forecast signals the world’s biggest energy supplier will struggle to meet President’s target of achieving expansion of as much as 10 percent within five years.
The World Bank currently expects Brent crude to trade at an average of $105 a barrel this year and then drop 9.5% during 2012. That scenario would effectively reduce Russian GDP growth to an annualized rate of 4.0% in 2011 and 3.8% next year. This is roughly in line with official Russian forecasts of 4.1% and 3.7% growth in 2011 and 2012, respectively. A “severe” shock could push Brent all the way to $45 during the next few months and then back up to an average of $60 in 2012.That worst-case scenario would push Russia’s economy into a deep 1.5% contraction next year. In any event, the Russian economy looks set to grow faster than the rest of the world, whatever happens. Source Dawn.com.pk