Following the collapse in oil prices in 2014, Russia’s domestic demand fell by about 10 % last year. GDP contracted 3.7 %. Oil prices declined again in the second half of 2015. Given the oil export price shocks, we expect the Russian GDP to contract by 3 % this year if the oil price averages slightly above $40 a barrel (about 60 % below the average price in 2014). Russian imports slumped by 30 % in 2014–2015, and we expect imports to fall another 10 % this year due to the economic contraction and Russia’s falling export earnings. With rather high inflation eating away at purchasing power, we see domestic demand shrinking substantially in 2016, including a reduction in real government spending. While a gradual rise in oil prices will bring economic respite and revive imports in 2018, economic growth remains slow due to uncertainties and Russia’s poor business environment. The central risks in the forecast involve oil prices and changes in imports.
Economic growth in China continued to slow in 2015, with annual GDP growth coming in at slightly below 7 %. Even with the negative market reactions to lower growth, there is little change in the long-term outlook. The modest slowing trend in growth will continue and China will move ahead with structural adjustments to its economy. As in our earlier forecasts, we expect the Chinese economy to grow at around 6 % p.a. in 2016 and 2017. In 2018, growth will slow to around 5 %. As China’s economy opens up to the world, it faces new risks that require more transparent policy responses. China’s high (and rising) debt-to-GDP ratio makes it increasingly susceptible to severe economic disturbances.
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).