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Now Even Kudrin Says It - Russia's Economy Will Resume Growth in Final Quarter

Emerging consensus of a return to growth in final quarter points to short and shallow recession and an economy that has adjusted well to falling oil prices

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This post first appeared on Russia Insider


Aleksey Kudrin, Russia’s former Finance Minister and one of the most pessimistic voices in Russia on the state of the economy, has now said that he too expects signs of recovery to become apparent in the last quarter of 2015.

This brings Kudrin into line with the forecasts of the Finance and Economics Ministries and of the Central Bank.

Meanwhile inflation is continuing to fall.  It is now estimated to be running at an annualised rate of 15.2%, with the Economics Ministry predicting deflation (ie. falling prices) in August.

Meanwhile the Finance Ministry is predicting a total budget deficit for 2015 of just 3% of GDP, the Central Bank’s reserves grew by $4.8 billion in June and the ruble seems to have shrugged off the brief plunge in oil prices that took place because of the Greek crisis.

Against this Andrey Kostin, Chairman of VTB, Russia’s second biggest bank, has said that he expects the next cut in interest rates to be no more than 50 basis points.  This comes despite the ruble's stabilisation, the fall in inflation and a significant fall in investment and manufacturing output in the period March to June caused in large part by the high interest rates.

Concerning interest rates, in conditions of falling prices such as are now forecast for August, the real burden of interest rates is actually growing despite the nominal decline since the start of the year.  This tends to reinforce the impression that the Russian authorities and the Central Bank have made a conscious decision to trade a short but relatively shallow recession for a long term reduction in inflation.

As to the severity of the recession, it has resulted in a significant cut in real incomes - the first since Putin came to power - but no steep rise in the rate of unemployment, which remains low.

Given the growing consensus of a return to growth in the fourth quarter, it would now be something of a surprise if that didn’t happen.  There are in fact no obvious reasons why it should not.

Overall the Russian economy has responded well to last year’s collapse in oil prices.  The adjustment has been surprisingly fast and far less painful than was anticipated.

Further confirmation that Obama’s claims that Russia doesn’t make anything and that Putin is wrecking Russia’s economy by trying to restore the USSR are nonsense.


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