The European Commission downgraded the forecast of development of Russian economy

Prospects of the Russian economy, suffering from the impact of sanctions and low oil prices remain gloomy, falling retail sales and consumption has not yet reached its bottom, and the approach of elections makes it difficult the implementation of structural reforms, noted in the new version of the forecast of the European Commission (EC).

According to the updated calculations of experts of the EC, the fall of Russia’s GDP in 2016, though it will slow down compared with year 2015, but it will be stronger than previously expected. If fall version of the forecast was predicted that in 2016 the Russian economy will fall by only 0.5%, now the EC is expected to reduce GDP by 1.2%.

Return the Russian economy to growth are still waiting for in 2017, but now, the EC believe that GDP growth will be three times less was 0.3% instead of 1%.

One of the main reasons for the deteriorating situation in the document called the decline in private consumption, which had hitherto been the engine of the economy. The decline in the purchasing power of the ruble and the fall in real income of Russians, according to experts of the EC, will lead to the fact that their expenditures on consumer goods will be reduced in 2016 by 2% and not 1% as previously thought.

Embargo on import to Russia of a number of Turkish products, which entered into force on 1 January 2016 in the context of a ban on the import of goods from EU countries, USA and some other countries, according to experts of the EC, will slow down the inflation. In the forecast of the EC noted that by the end of 2016, the inflation in Russia will amount to about 8.5%, thus remaining well above target, the Central Bank at 4% per annum.

At the same time will continue to deteriorate the situation on the labour market. Earlier in the EC expected that in 2016-2017 unemployment stays at 5.5% of the working population of the country. Under the forecast, in 2016 the unemployment rate will jump immediately to 5.9%, and in 2017-6.1 percent. The rise in unemployment in the document is attributable to reduced capacity of companies to reduce operating costs without layoffs.

The forecast emphasises that deficit of Russia’s budget in 2016 will be met from the contingency Fund, which reserves may be completely exhausted by the end of the year.

On the eve of the Bank of Russia has lowered its estimate of the annual rate of decline of Russia’s GDP in January—March 2016, citing negative foreign economic conjuncture and the threat of weakening economic activity.

“The annual rate of decline of GDP in the first quarter of 2016 could reach 1.7 to 2.5%, which is higher than the previous forecast (1-2%)”, — stated in the materials of the Central Bank.

Earlier, the international rating Agency Fitch reported that it expects by the end of 2016 reduction of Russia’s GDP by 1% instead of the previously promised an increase of 0.5%.