The Russian economy has begun to contract due to the fall in the price of oil. GDP will contract by over 4% in 2015 if the oil price is over USD 55 a barrel. High uncertainty will cause a decline in investment, and consumption will be cut particularly by rapid inflation. Imports will be reduced by the contracting domestic demand, a weak rouble and Russia’s declining export income. In 2016–2017, the price of oil will rise moderately, leading to a gradual flattening out in the contraction of the economy and imports. Forecast risks relating to investment and imports, in particular, are high. The foundations of economic growth will be eroded as investment declines and the support and protective measures taken to counter the recession smother reforms and competition further.
BOFIT sees economic growth in China, which slowed last year to just over 7 % p.a., remaining near 7 % this year and then slowing to around 6 % in 2016 and 2017. This widely expected slowdown in growth also comports with our previous view on China’s long-term growth prospects. China’s decades of sus-tained high growth are now behind us, and maintaining conditions conducive to growth will become ever more elusive and require deliberate progress in reforms. Risks to the economy will rise with slowing growth. In the forecast period, the biggest risks are a debt crisis that gets out of hand or a meltdown in the real estate sector.
The forecasts can be found here.
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).