On 8 October 2012 the World Bank downgraded its forecast for the Russian economy for 2012 from 3.9 per cent GDP growth to 3.5 per cent. It also cut its outlook for 2013 by half a percent to 3.6 per cent, citing inter alia a rise in inflation (year-on-year inflation of 6.4 per cent in September 2012, compared to a year-end target of 6 per cent that has been set by the Central Bank of Russia) and drought. The report also notes that capacity utilisation is at its peak, with any further growth dependent on higher levels of investment. Meanwhile the labour market is demonstrating “signs of overheating”, with wage growth “outpacing productivity gains”.
The report also notes worryingly: “An ageing and shrinking workforce and declining oil production could dampen growth over the next decades.”
The report can be accessed here: http://www.worldbank.org/content/dam/Worldbank/document/Russia-Snapshot.pdf
The World Bank notes that growth was impressive in the first half of 2012, driven primarily by high oil prices and strong domestic consumption. Furthermore, compared to other countries, public debt accounts for less than 10 per cent of GDP.
However, the slowdown in the third quarter of 2012 and bleak forecast for the fourth quarter leads the bank to assume that the Russian economy could slow next year, due in part to the poor harvest and the fact that global economic recovery is nowhere in sight at the moment.
The report cites as potential positives Russia’s accession to the World Trade Organization in August 2012, which should benefit most sectors of the economy due to lower input costs and increased export prices. The higher level of competition is expected to drive further diversification of the economy, modernisation and growth.
In addition, Russia’s fiscal position is good due to prudent management of expenses and high oil prices (until recently). However, there is a need to diversify dependence on oil prices – in 2011 oil and gas revenues accounted for 10.4 per cent of GDP or half of all federal revenues. This compares to 7.6 percent in 2009, equal to two-fifths of federal revenues.
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