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Sunday, March 18, 2018

Medvedev saw the bottom of the Russian crisis

Prime Minister Dmitry Medvedev at the session of the Consultative Council on foreign investment said that Russia has passed the most difficult period, when the economy was forced to adapt to “external shocks” – the drop in oil prices, international pressure in the form of various political constraints, and now shows a desire for growth. According to him, the Cabinet has done a good job-crisis – in-Russia set the lowest level of inflation for the entire period of the existence of a domestic market economy, that is, in fact, over the past 25 years. At the end of this year, there is a likelihood of lower inflation to 5.5%. Next year the government expects to inflation and does not exceed 4%.

photo: Gennady Cherkasov

Interviewed by “MK” experts have estimated the probability of such a scenario. Most agree that low inflation in 2017 is possible, but there are some fundamental conditions.

Nikita Maslennikov, a senior expert of the Institute of contemporary development:

“Inflation at 4% is the goal of the Central Bank in 2017, the same parameters laid down in the draft budget for next year. This is the basic version. In the “basic plus” scenario, the expected inflation may reach 5%. I think this is quite a realistic forecast, but final figures are still difficult to predict. One of the important factors on inflation remains the indexation of tariffs of natural monopolies. If the tariffs for electricity, water, gas and heat will be indexed in the same range, their contribution to inflation will remain fairly moderate — about half of one percent. Otherwise, every extra percentage point of rate can disperse the annual inflation growth rate is approximately 0.18%.

The most challenging in terms of inflation expectations appear to be first quarter of 2017. First, in February indexation of pensions, which will be held on the actual level of inflation of the previous year. Before that, in January must be made a lump sum payment to pensioners in the amount of 5 thousand rubles. In total it is about 460-470 billion. Where people will go with the money? Likely for store. This will give some recovery in the consumer market, but, of course, can have a negative impact on inflation. In addition, there remain risks associated with the ruble, oil prices, demand for Russian assets on the world market. Yet here, too, everything is ambiguous”.

Irina Rogova analyst GC Forex Club:

“If you look at the dynamics of Russia’s GDP by quarter, we can note that the rate of decline over the past five quarters slowed. This alone suggests that the economy has “passed the bottom”. Latest figures show that in the II quarter of 2016, the pace of GDP decline slowed down to 0.6%, against 1.2% in the first. Some signs of stabilizing the economy observed, and among other macroeconomic indicators. For example, the industrial production month-on-month increases since June this year. During the last five months and noted a reduction in the unemployment rate: 5.2% in August from 6.0% in March. Reduced price pressure. At the end of September the consumer price index was 6.4% vs 15.7% in the same month last year. So, overall, Yes, it is possible to say that the economy of Russia has passed the bottom. Although, of course, is of no strong growth, however. It is quite possible that in 2017 GDP will be released on the symbolic growth of 0.3 – 0.5% in annual terms. As for inflation, the Central Bank and the government voiced the forecasts of 4% for 2017. One of the constraints to growth may be low consumer activity. After all, real disposable household incomes still in decline (in August -8,3%) and this happens for nearly 2 years. If you believe the forecasts of the Ministry of labor, the pre-crisis level, real income will return only to the end of 2018. However, there should not forget about t th that for 2017 the draft budget provides the exchange rate of the dollar to 67.5 rubles. And this includes devaluation from current levels by 6.85% and it will definitely affect the inflation indices. And if we remember that the U.S. Federal reserve prepares to raise rates and it is possible that in 2017, this trend will continue, which will support the dollar, which may potentially lead to stronger weakening of the ruble. In addition, do not forget that there are chances for the rising cost of food on the world market, which will also affect its price in the Russian shops. Therefore, it is likely that inflation in 2017 will be somewhat higher (4.5 – 5 percent) than expected”.

Alexei Antonov, an analyst at ALOR BROKER:

“I agree that inflation at 4% per annum – a very good monetary indicator, but on the background of negative GDP growth it brings almost no benefit the economy: Yes, there is almost no inflation, but there is no strong consumer demand, growth of small and medium businesses, fall in real wages. In my opinion, monetary authorities of the country, perhaps holding on a little too high key rate, which prevents the business to benefit from the current situation, to grow, to capture markets. The economy seems to be living on a starvation diet: Bank loans are very expensive, the number of taxes increases. Inflation at 4% you can keep for a long time maintaining at a high level the key rate of the Central Bank, now it is 10.5%. This level leads to the fact that commercial banks give loans to business under 25 to 29% per annum. I believe that this will also keep freezing the indexation of pensions and not to make lump sum payments to reduce the allowances to the population, for example, the parent capital. Already there is talk that the retirement system military want to reconsider. That is, a low inflation can only be shown on the background of the fortress of the national currency, either due to low costs.”


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