CBR: Russian economy will continue to “feel the bottom” in the coming months

CBR: Russian economy will continue to “feel the bottom” in the coming months

MOSCOW, February 3. The Russian economy will continue to “feel the bottom” in the coming months, the recession will continue. This assessment is contained in the Bulletin of the Department of studies and forecasting of the Bank of Russia.

“The economy will likely continue to feel the bottom in the coming months”, – stated in the report.

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The Department of the Central Bank confirms the forecast of a recession in the first half of the year and explains the pessimism by falling oil prices. “Statistics on industrial production for December indicates that the reduced production of the main types of economic activity in General continues. This confirms the fears of a more prolonged downturn in the Russian economy than previously thought. The main reason is the decline in oil prices in recent months”, – explained in the report.

“Arrived in the last month of macro data confirm the assumption made by us in December, raising the likelihood of continuing recession in the first half of 2016,” adds the Department of the Central Bank.

About the price of oil

Oil prices, according to the Department of the Bank of Russia, can permanently “stuck” at the level of $20-40 per barrel.

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“Many commodities and indices, including oil, in January reached a new multi-year lows, while oil prices are permanently “stuck” in the range of $20-40 per barrel”, – stated in the report.

The main factors that will shape oil prices will be demand for oil and oil products in China and the ability of countries-oil exporters to agree on a coordinated reduction of production.

In this case the Central Bank does not expect that OPEC will fail to agree on production cuts. “History knows cases of coordination of actions of OPEC and countries outside the cartel to limit production, which allowed to raise the price of oil. According to RBC, such cases were in early 1999 and end 2001, when, in addition to OPEC reduced production Mexico, Norway, Oman and Russia. However, the likelihood of such arrangements is currently small,” according to the securities Department.


Oil prices have increased the drop from the beginning of 2016, now the April futures for Brent crude traded in London at $33,96 per barrel. The fall in oil prices has led to a new wave of devaluation of the ruble and forced the government to revise macroeconomic forecasts and adjust your budget.

About the devaluation of the ruble

The Bulletin of the Department of studies and forecasting of the Bank of Russia also said that the devaluation of the ruble in December-January will add up to 1.3 p. p. to inflation in the first quarter.

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“The effect of the weakening exchange rate, which occurred in December 2015 – the first half of January 2016, may result in additional growth of consumer prices to 1.3 PPT in the first quarter of 2016 under other equal conditions”, – is informed in the report.

The fall in oil prices the last two months caused a significant weakening of the ruble, the exchange rate of which against the dollar since December 2015 has fallen from 66.7 rubles/$ to 79,26 rubles/USD.

According to the latest forecast of the Central Bank, inflation in 2016 will be 5.5-6.5 per cent.

About the budget deficit

The budget deficit when oil prices at $35 per barrel will rise to 4.8% of GDP, the report of the Bank of Russia. “Implementation of the basic scenario of the forecast Department (which provides for oil price at $35 per barrel on average in 2016 – editor’s note) leads to the shortfall of Federal revenues relative to approved value at $ 1.45 trillion, increasing the deficit from 3% to 4.8% of GDP,” the report said.

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It also States that adherence to the goal of deficit of 3% of GDP without increasing the tax burden calls for a corresponding reduction of expenditure – nearly 9% of the approved law 16,1 trln roubles.

The Ministry of Finance has repeatedly indicated that the budget deficit in 2016 should not exceed 3%. To fulfil this objective, the Agency called on the Russian President Vladimir Putin. The current budget for 2016 assumes prices of $50 per barrel.

According to the Department of the Central Bank, the negative trends in the economy “should be the basis for refusal from the additional indexation of pensions at the expense of the formed reserves”. Since February, pensions were indexed at 4%, the second index was expected to be adopted by the government following the development of the economy in the first half of the year.

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This forced Pro-cyclical fiscal policy of the Ministry of Finance will consume 0.2 to 0.3 percentage points to the dynamics of GDP in the current year. “The pressures of internal and external sources of hozaystvennih puts the size of the Federal budget deficit in a rigid frame and makes a policy of restriction of expenses in the conditions of great volume of the accumulated Reserve Fund. This makes a forced Pro-cyclical fiscal policy during the economic recession, which creates a negative effect on GDP growth, which is estimated at 0.2 to 0.3 percentage points in 2016”, – is informed in the report.

Earlier, the head of the Bank of Russia Elvira Nabiullina reported that the risks of fiscal policy can affect inflation in the Russian Federation. Assessment of the Central Bank, the decline of Russia’s GDP in 2016 will amount to 0.5-1%.

As expected, the Ministry of Finance may introduce amendments to the budget at the end of the first quarter, which will take into account low oil prices and proposals to reduce costs and increase revenues.

About inflation risks

New foreign exchange shocks remain the key risk for inflation this year.

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“The major risk for inflation in 2016 remains a possibility of new monetary shocks on the back of lower oil prices”, – stated in the report.

According to the securities Department, recently rising inflationary risks, the expectations and trend inflation. In this case, “inflation expectations has considerably complicated the task of slowing down inflation to target in 2017”.

About the outflow of capital from Russia

Capital outflow from Russia, according to the Central Bank, may drop to $30-45 billion in 2016 compared to us $56.9 billion in 2015.

“The positive trends that became evident in the financial account in 2015, should be strengthened and lead to further decline in net capital outflows to $30-45 billion in 2016”, – stated in the materials Department.

The latest official forecast of the Central Bank proceeds from capital outflows of $53 billion this year. The MAYOR predicts $50 billion.

As previously explained, the Central Bank, unlike previous years the main component in the structure of net export of capital now becomes the repayment of private external debt. The most important is the reduction of external liabilities of banks.