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Economic Development Ministry worsens forecast for Russia’s GDP growth in 2018

The Economic Development Ministry has worsened its forecast for Russia's GDP growth in 2018 from 2.1% to 1.9%

MOSCOW, June 27. /TASS/. The Economic Development Ministry has worsened its forecast for Russia's GDP growth in 2018 from 2.1% (set in the April forecast) to 1.9%, a source in the government's financial and economic department told reporters.

The relevant updated macroeconomic forecast has been submitted to the government, the source said.

The ministry also lowered its forecast for Russia's GDP growth in 2019 from 2.2% to 1.4%.

According to the new forecast, inflation in Russia will be 2.9-3.1% in 2018 not 2.8% as it was expected in the forecast released in April.

The forecast for inflation in 2019 was raised from 4% to 4.3%, the source said.

The Economic Development Ministry also estimated the impact of the VAT increase from 18% to 20% (planned from 2019) on inflation as 1.2 percentage points (pp). In particular, 0.2 pp. will be added to inflation this year. Nevertheless, in 2019, the acceleration of inflation will not exceed 4.5% in annual terms, the source said.

According to the source, the ministry maintained its outlook for the growth of real wages in 2018 at 6.3% and slightly lowered expectations for 2019 - from 1.3% to 1%.

Industrial production growth

In the revised macroeconomic forecast, the ministry raised its outlook for the growth of industrial production in 2018 from 1.7% to 2.5%. The growth of this indicator in 2019 is expected to be no less than 2%.

The ministry expects that after adjusting to new conditions (raising VAT to 20% and capital outflow from emerging markets) GDP growth will intensify and in 2020 will exceed 2%, and in 2021 will be about 3%.

Oil price up, ruble weakens

According to the new version of the ministry, the average annual ruble-to-dollar exchange rate in 2018 will be 61 rubles per dollar against 58.6 rubles, as it was expected in April.

The forecast for the ruble-to-dollar exchange rate at the end of the year is about 62 rubles per dollar (previously - 58.8 rubles), the source added.

At the same time, the ministry does not see the grounds for a significant weakening of the ruble rate in 2019-2020 and expects it at about 63-64 rubles per dollar.

In the new version of the macro forecast, the average annual price of Urals oil in 2018 is set at $69.3 per barrel up from $61.4 in the April forecast, and in 2019 it is expected to be $63.4 per barrel. By 2024, it is expected to decline to $53.5 per barrel.

Capital outflow decline

The Economic Development Ministry revised upwards its outlook for capital outflow from Russia in 2018 to $25 bln from $33 bln (according to the April version of the macroeconomic forecast).

The ministry expects that in coming years the outflow of capital will decline and by 2024 the indicator will reach minimum values close to zero.

The ministry’s forecast for the growth of investment in fixed assets in Russia in 2018 has been set at 3.5% against 4.8% in the April version. In 2019 this indicator is seen at 3.1% against 5.6% as it was set in the April forecast.