Russia Downgrades Economic Growth Projection

OLYMPUS DIGITAL CAMERA

Russia will downgrade its forecast for economic growth following plans to raise value-added tax and the retirement age.

According to reports, an updated view of gross domestic product will be delivered by the Economic Development Ministry in the coming weeks which depicts growth of 1.4 per cent for 2019 – lower than the previous projection of 2.2 per cent.

The new forecast also puts inflation at 2.9 to 3.1 per cent for 2018 – not 2.8 per cent as predicted in the April forecast. Inflation for the following year will be revised to 4.3 per cent instead of 4 per cent.

Russia plans to raise the value-added tax (VAT) rate two per cent higher in 2019, which could spur inflation and hurt consumer spending. An insider source, speaking under the condition of anonymity, told Bloomberg a possible increase in government spending would not have an impact until the second half of next year, with economic growth to accelerate from 2020.

The tax hike was unveiled earlier this month in a package of budget measures which also included the controversial proposal of raising the retirement age. Surveys have since shown that around 90 percent of the population oppose the plan which would raise the retirement age for men from 60 to 65, while women would work 8 years longer until age 63. The plan for men would be enacted by 2028 and for women by 2034.

Reaction to the plan has very much been mixed, with some Russians noting that 43 per cent of men are statistically not likely to reach the age of 65. The proposal has even dented the approval ratings of President Vladimir Putin – the leader lost up to eight points on some opinion polls following the announcement.

Nonetheless, pundits believe Putin is using such economic measures to make good on his March re-election promise of bringing Russia into the ranks of the world’s top five economies.

Perhaps one of the ways to do that is by revising statistics. Bloomberg also reported last month a revision by the national statistics service instantly doubled last year’s gain in industrial production from its previous estimate. The new classification methods from the Federal Statistics Service implied better momentum going into this year while also heaping uncertainty upon international investors and analysts.

The Bank of Russia currently predicts the economy will not expand faster than about 1.5 percent to 2 percent. The International Monetary Fund also put the nation’s medium-term economic growth at 1.5 percent a year.

leave a reply