With the collapse of oil prices in 2014, the Russian economy has contracted this year. Assuming the oil price is slightly below $55 a barrel, our forecast sees Russian GDP shrinking around 4 % this year. Fixed investment is depressed by uncertainty, while last winter’s surge in inflation continues to discourage private consumption. Government spending is set to contract in real terms. Russia’s oil exports are experiencing unexpectedly robust volume growth. Imports have fallen and are expected to be about 25 % lower this year than in 2014. For 2016–2017, we assume a moderate rise in the oil price while the effects of the 2014 price collapse will continue to weigh on the economy still in 2016. We expect GDP and imports to contract slightly in 2016 and then make a slow recovery. Thereafter, growth will remain low as opportunities for growth have been curtailed by low fixed investment and systemic deficiencies that have not been addressed. Tensions in eastern Ukraine, sanctions, and lack of clarity about measures to restrict economic activity and trade in Russia will sustain uncertainty. Implementing stimulus has been difficult through monetary policy, and budget constraints limit the government’s options on the fiscal side. The forecast is surrounded by large risks, especially with respect to fixed investment and imports.
As projected in earlier forecasts, Chinese economic growth continues to slow. 2015 GDP growth overall should average around 7 % p.a., and then the growth is expected to fall to around 6 % p.a. in 2016 and 2017. China faces the challenge of creating new engines of growth and managing its existing problems. This calls for determined reforms that inevitably will also bring about various kind of disturbances in the economy. Given decelerating growth and rising indebtedness, the risk that the Chinese economy underperforms this forecast is rising.
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).