Despite many forecasts of doom and gloom the Russian economy is doing much better than expected
- The decline in Russia's GDP has been much lower than predicted
- Unemployment predicted to be much higher in the EU in future
- The ruble still has a higher inflation rate than the euro
- Russia still has a massive wad of cash to fall back on if times are tough
This article originally appeared in German-Russian Economic News. Translated by Susan Neumann for Russia Insider.
The International Monetary Fund (IMF) estimated that the expected decline of the Russian economy for the current year at "only" 3.4 per cent. Against the backdrop of a significantly poorer forecast (minus 4-5 percent) that was made in Russia, the current IMF forecast looks downright optimistic. The IMF expects even a slight amount of growth in Russia's gross domestic product (GDP) in 2016.
As for the cause of the severe recession, the IMF cites the decline in domestic demand, which was in turn triggered by the declining price of oil and the existence of the sanctions. The IMF consultations with Russia and the Eurozone, carried out annually, have been the incentive for the recently published forecasts.
Growth in 2016 expected to again be at the EU level
According to the opinion of the IMF, the growth in the Eurozone for 2015 is – hardly surprising -- more favorable. Interestingly enough, the IMF predicts that in 2016, the growth rate of the Russian economy (1.5 percent) will match that of the Eurozone. That would in effect grant bragging rights to all those who predicted that the economic downturn of the emerging markets was nothing more than a cyclical contraction, and that would – in comparison to the classical industrial states of the so-called First World -- not go against the long-term trend of a significantly stronger growth period for these economies.
If the IMF forecasts are correct, Russia will be in a favorable position vis-a-vis the Eurozone in the coming years, even with regard to employment. The unemployment rate should be as low as 6.5 percent in 2015 and 2016, despite the recession. By contrast, the unemployment rate in the Eurozone continues at 10 percent, even for the future. Russia does however receive a minus point in terms of inflation: 15.6 percent in 2015 and 7.5 percent inflation in 2016. These rates are virtually miles away from the 1 percent rate reported for the Eurozone.
Economic performance benefits from the sanctions
The economic war with the West has reflected positively on the current account of the Russian economy. Sanctions, the import embargo and the ruble price increase, as well as the political program of import substitution have reduced the amount of imports. The IMF expects a rise in the Russian current account surplus of US $61 billion in 2015 to $79 billion in the coming year.
The IMFs sees the Russian foreign exchange reserves at $360-375 billion until the end of 2016. After the huge outflows in 2014/15, the drain of capital is expected to stabilize in the next year. Investment activity, already stalled before the Ukraine crisis, will continue to remain low. In order for there to be a return to the boom year growth rates prior to 2008, whether they be medium or long term, the variable “investment” will be an all-important deciding factor.