The Department of the Central Bank: stagnation of the Russian economy may continue until mid-2016

The Department of the Central Bank: stagnation of the Russian economy may continue until mid-2016


MOSCOW, March 3. Stagnation of the Russian economy is likely to continue until mid-2016. This conclusion follows from the Bulletin of the Department of studies and forecasting (SSP) of the Central Bank of the Russian Federation “as evidenced by trends”.

“The January statistics for the main short-term economic and financial indicators have generally resulted in a slight improvement in our estimates for GDP growth in the first half of 2016. However, model estimates of the deep continue to indicate the likely continuation of stagnation until the middle of the year. Weak performance of some leading indicators indicates that a full recovery will be protracted, given the ongoing structural changes,” the document says.

Department of the Bank of Russia also revised the assessment of the decline in GDP with seasonality for the first quarter of 2016. If in January of the current year expected GDP decline in the first quarter by 0.7%, the February update is said to reduce in the first quarter by 0.3%. However, according to experts, the DIP, is still likely to continue slowdown of the Russian economy in the beginning of 2016.

The decline in GDP at the end of 2016 may be slightly over 1% while maintaining the current positive dynamics is marked in the document.

“Our GDP estimate for the second quarter of 2016 was also slightly improved compared with January. Now it assumes near-zero momentum. The first estimate of the third quarter of 2016 taking into account the currently available statistics indicates the resumption of weak growth in the amount of 0.2-0.3% for the quarter. While maintaining the same positive dynamics until the end of the year the decrease of GDP by the end of 2016, likely to slightly exceed 1%”, – stated in the document.

Factors of influence

“The January figures including, first of all, statistics PMI (business activity index) in Russia, give a much more pessimistic assessment of GDP growth in the current quarter compared to the indicators of the real sector and financial indicators and indicators of the external sector”, – stated in the Bulletin.

Dynamics of financial indicators and indicators of the external sector, by contrast, has made a negligible contribution to the change of quarterly estimates of GDP.

“With the stabilization of external conditions over the past month, the index of oil prices is likely to have played such a big role on the current iteration of the short-term GDP estimates, as a month earlier.

An additional constraint on GDP growth in the first quarter, which is explicitly not taken into account in our short term index the GDP estimate are budgetary costs and, in particular, the deterioration of the calendar of execution of the budget in 2016, compared with the previous year”, – explained in the document.

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The reduction of budget expenditures can reduce the dynamics of Russian GDP in 2016 by 0.3-0.7 percentage points, also said in the document. “According to our estimations, depending on the scale of the correction of budgetary expenditures negative contribution to GDP growth in 2016 from the expenditure side of the budget will amount to 0.3-0.7 percentage points”, – the document says.

It is indicated that due to less active financing of budget expenditures in the conditions of uncertainty early in the year, the main negative effect on GDP due to the reduction of costs in the first quarter. In 2016 is expected to reduce Federal spending and the budget system in real terms with the growth of budget deficits.

“This reduction forced and is structural in nature due to the significant decline in hydrocarbon prices, resulting in significant loss of oil and gas revenues of the budget, even under a floating exchange rate”, – notes the Department of the Bank of Russia.

Dynamics of the industrial sector

Estimated DIP, the signs of recovery of Russian industry on a sustainable growth path yet.

“If we abstract from positive weather factor in January, it must be recognized that industrial production is still far from achieving sustainable growth. However, the deterioration also does not occur”, – the document says.

The formation of a stable positive growth rates in industry have traditionally depended on external conditions and demands of the time required for the completion of what is happening in the economy structural changes, the Department notes of the Bank of Russia.

Industrial output in January 2016 rose 0.4% to a seasonally adjusted Rosstat. Seasonal adjustment Department of the Central Bank points to growth of 0.6%, the document says. Small output growth in industry with seasonality is observed for the second month in a row. However, the dynamics of production by main economic activities is different.

In January 2016 the manufacturing sector showed a slight decline, while in December 2015 processing has been a key contributor to the growth in aggregate industrial production index. The main factor of growth of industrial production in January was the production and distribution of electricity, gas and water, indicates the Department.

Inflationary pressures remained muted

Inflation in RF in February slowed to 0.7% against 1% in January, also stated in the document. “In February compared with January has slowed the monthly pace of price growth from 1.0% to 0.7%”, – informs the Department of the Central Bank, stressing that these figures are not directly comparable, since they do not take into account the different impact of seasonality in these two months.

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“Simple smoothing of the series of consumer price index points to a slight acceleration in February compared to January: from 0,35% to 0,45%,” reads the Bulletin.

The document also States that inflationary pressures in February decreased while maintaining a high inflationary risks. The Bulletin also notes that, according to the adjusted results of the February polls “infom”, inflation expectations decreased in February from 9.8 to 9.2%. Nevertheless, inflation expectations still remain high, the document notes.

Remains high and trend inflation (inflation net of temporary factors). Thus, the estimate of the trend annual rate of inflation fell in January to 10.7 per cent, being higher than the actual inflation rate for the first time in two years and still remains at a high level.

If the current trends of the price Department of the Central Bank expects gradual reduction of the estimated trend inflation. “However, in case of realization of the inflationary risks, the decreasing trend of inflation will be slower,” – said in the Bulletin.

Inflation in Russia in 2016 could be 8-8,5% if the current pace of monthly price increases, according to the Department. The Central Bank predicts in 2016 inflation in Russia at 5.5-6.5 per cent. This prediction can be verified by March 18.

The Central Bank plans to achieve its inflation target to 4% in 2017.