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Morgan Stanley predicts Russia’s GDP to slump 5.6% in 2015

January 30, 2015, 12:36 UTC+3 NEW YORK
Morgan Stanley’s updated forecast for Russia’s GDP decline in 2015-2016 is worse than its previous outlook, which predicted that the Russian economy would shrink by 1.7% in 2015
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NEW YORK, January 30. /TASS/. US Investment Bank Morgan Stanley predicts Russia’s GDP to fall by 5.6% in 2015 and 2.5% in 2016, the news agency Bloomberg reported on Friday.

Morgan Stanley’s updated forecast for Russia’s GDP decline in 2015-2016 is worse than its previous outlook, which predicted that the Russian economy would shrink by 1.7% in 2015 and grow by 0.8% in 2016.

Morgan Stanley analyst Alina Slyusarchuk said recession in Russia would last longer compared with the economy’s quick recovery during the crisis of 2009 partly due to the risk of fresh western sanctions against Moscow.

Morgan Stanley expects world oil prices to average $55 per barrel in 2015 and $64 per barrel in 2016 and the Russian currency to fall to 72 rubles to the dollar by late 2015. The US investment giant also said the Central Bank of Russia was likely to keep interest rates high during the entire first half of 2015.

Economists and bank analysts polled by TASS on Thursday said the Bank of Russia would keep the key rate at 17% at its policy meeting on January 30. This opinion was shared by Credit Suisse, HSBC, Gazprombank, UniCredit Bank, Alfa-Bank, Metalloinvestbank, Uralsib Bank, B&N Bank, Otkritie Capital and Renaissance Capital.

Russia’s Central Bank hiked the key rate to 17% from 10.5% on December 16 to stem the ruble’s slump and calm the market but now high interest rates are stifling the Russian economy.

Meanwhile, experts at Credit Suisse investment bank expect the US dollar to rise to 82 rubles in the next three months but average 75 rubles this year.

Morgan Stanley experts also said in their report there were risks of further sanctions against Moscow and did not rule out capital controls in Russia.

Moritz Kraemer, chief ratings officer at Standard & Poor’s international rating agency, earlier said S&P didn’t expect capital controls in Russia but would consider it as a further decrease in Russia’s monetary policy flexibility, if this measure was introduced.

On January 26, 2015, Standard & Poor's lowered Russia’s sovereign credit rating to the speculative grade BB+ from the investment level BBB-, with a negative outlook.

Last time Russia was rated that low was eleven years ago, in January 2004, when S&P downgraded Russia to "BB+."

S&P said the downgrade reflected its view that Russia's monetary policy flexibility had become more limited and its economic growth prospects had weakened.

The agency also said it saw a heightened risk that external and fiscal buffers would deteriorate due to rising external pressures and increased government support to the economy.

"We believe that Russia's financial system is weakening and therefore limiting the Central Bank of Russia's ability to transmit monetary policy. In our opinion, the CBR faces increasingly difficult monetary policy decisions while also trying to support sustainable GDP growth," S&P said in a statement.

"These challenges result from the inflationary effects of exchange-rate depreciation and sanctions from the West as well as counter-sanctions imposed by Russia. We project Russia's real GDP per capita growth to average less than economies with comparable levels of per-capita income over our 2015-2018 rating horizon," the international rating agency said.

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