The latest forecast for Russia from the Bank of Finland’s Institute for Economies in Transition (BOFIT) sees uncertainty increased by the Ukraine crisis impacting Russia’s real economy, and private investment in particular, effectively quashing GDP growth this year. Economic growth should gradually return in 2015 and 2016 assuming that financial market responses to the instability heightened by the Ukraine crisis are limited and there is no further escalation and prolongation of sanctions. Russian imports will remain at their already reduced levels through next year. The downside risks to our prognosis are substantial and wide-reaching. Over the long term, the conditions for economic growth and development will be weakened by postponed private investment and the government’s stress on defence spending and efforts at increased national self-sufficiency in production.

BOFIT sees economic growth in China, which has been below 8 % p.a. already for two years, slowing further in coming years. We retain our earlier view that GDP growth will remain around 7 % this year and next, and then fall to around 6 % in 2016. Success in China’s soft landing, however, will depend largely on the government’s ability to rein in indebtedness of businesses and local governments, as well as implement bold reform policies that foster new growth engines and appropriately manage risk. Occasional market disruptions appear almost inevitable as China revises its growth model and moves ahead with structural reforms.

The forecasts can be found here.

For further information:
Vesa Korhonen, senior economist, +358 10 831 2834 / vesa.korhonen(at)bof.fi (Russia)
Jouko Rautava, adviser, +358 10 831 2280 / jouko.rautava(at)bof.fi (China)
Iikka Korhonen, BOFIT head, +358 10 831 2272 / iikka.korhonen(at)bof.fi (Russia and China).

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