Gaidar Institute Presented New Forecast for 2017-2018

On April 17, a press-conference was held at the Rossia Segodnya International Information Agency where a macroeconomic forecast prepared by experts of the Gaidar Institute, the RANEPA and the Russian Foreign Trade Academy (RFTA) was presented.

The discussion was opened by Sergei Drobyshevsky, Academic Director of the Gaidar Institute who presented the macroeconomic forecast for 2017–2018. According to Sergei Drobyshevsky, after publication by Rosstat of the second estimate of GDP in 2016, the updated data on the three quarters of 2016 and the first estimate of GDP in Q4 the perception of Russian economic dynamics in 2016 changed a great deal.

Sergei Drobyshevsky reminded that as a result of revision by Rosstat of its evaluation methods GDP decline rates amounted to the mere 0.2% in 2016 compared to 2015, while in Q4 2016, for the first time in two years, GDP volume in physical terms increased (a 0.3% year-on-year growth). “However, improvements in the macroeconomic dynamics influenced a change in forecast estimates because shrinking of the extent of GDP decline in 2015–2016 after revision of the data by Rosstat triggered the “base effect” in respect of the 2017–2018 forecasts. As a result, recovery growth became more moderate. As regards the baseline scenario, we expect economic growth of 1.2% - 1.8% in 2017–2018”, Sergei Drobyshevsky said.

“In preparing the baseline scenario of economic development for the next two years, we proceeded from the assumption that the average annual oil price would amount to $50 and $60 a barrel in 2017 and 2018, respectively. These values are within the limits of experts’ consensus-forecasts. It means that foreign trade conditions for the Russian economy in the next two years will be more favorable than in 2016”, the expert stressed.

As was pointed out by Sergei Drobyshevsky, in preparing the forecast an alternative scenario with appreciation of the US dollar exchange rate was taken into account. “The thing is that some expert communities speak in favor a policy of depreciation of the rouble to Rb 65–Rb70 per dollar. They believe that only a high dollar /rouble exchange rate may ensure competitiveness of Russian manufacturers and stimulate import substitution. In our view, this prerequisite is false, so to evaluate the consequences of such an option we have prepared an alternative scenario suggesting a policy of depreciation the national currency in the next two years to Rb 64.8 per dollar and Rb 70 per dollar in 2017 and 2018, respectively.

In such a case, economic growth in Russia will amount to 1.4%–1.5% in 2017, but next year growth will not exceed even 1.5% due dollarization of the economy and upward interest rate trend. Eventually, the economy will start stagnating again because foreign exchange speculations are going to become more advantageous to all economic agents than any real business activities”, Sergei Drobyshevsky explained .

In his turn, Alexander Knobel, Director of the Institute of International Economy and Finance of the Russian Foreign Trade Academy told about the trade between Russia and the EU countries, as well as the effect of sanctions on the nature of trade and economic relations. According to Alexander Knobel, after three years of sanctions trade and investment relations between Russia and the EU have become strictly based on market principles with no politics involved.

At the same time, the value of trade turnover between Russia and the EU is declining due to a drop in global prices on some commodities. “In value terms, Russia is losing grounds on the European market. So, in 2016 Russia became the 4th country as regards export volumes to the EU market, having shifted downward from its traditional third place (after the US and China), which it held for over a decade. Russia’s share in the EU’s aggregate imports fell to 7.0% in 2016 (compared to 7.9% and 11.5% in 2015 and 2010–2014, respectively). Falling prices on energy commodities affected the value of the trade between the EU and Russia”, the expert said.

The same situation is with oil, According to the data of the European Commission, in 2016 crude oil supplies from Russia to the EU rose to 1,198.9m barrels (or 6.3% compared to 2015). In 2016, Russia’s share increased to 31.8% (2.4 p.p. compared to 2015) of the aggregate crude oil supplies to the EU. “Prices (in euro) on all the commodities (except lead) decreased and that situation in most cases exceeded positive effects from growth in supplies in volume terms”, the expert noted.

“However, this year the situation is changing for the better owing to growing prices of energy commodities, so Russia’s share on the European market is likely to be higher”, Alexander Knobell said.

Vladimir Mau, Rector of the RANEPA said that amid the structural crisis one should not overestimate the importance of macroeconomic methods as structural problems of the economy could not be solved by monetary policy instruments alone. “The exchange rate policy may cause damage to economic growth, rather than improve it. It is not growth rates that matter, but the difference between savings and investments. If savings have exceeded by a few GDP percentage points investments, then it is a problem. There are internal mechanisms to influence investors’ behavior and economic expectations. Modification of the economic policy could have an adverse effect on economic agents in terms of expectations. It took three years to convince them that the Central Bank of Russia is committed to the policy it declares”, Vladimir Mau noted.

Also, Vladimir Mau said that long-term sustainable economic growth is the main objective, rather than positive growth indicators in the next two years. “Short-term growth can be easily ensured through investment growth. We prefer to be guided by short-term growth indicators and do not think about the consequences. A short-term economic effect will lead to a long-term recession in future. On the contrary, long-term economic growth suggests structural changes, that is, investments in human capital and infrastructure. In case of Russia, measures aimed at promoting economic agents’ confidence should be introduced, as well”, the RANEPA Rector said.

“It is necessary to improve the investment climate, upgrade the institutes, introduce new technologies, make investments in the infrastructure and human capital, modify the pattern of expenditures and promote security of economic activities and business “, Vladimir Mau concluded.

Video recording of the press conference