Rising downside risks hamper growth prospects
Growth stagnated at 0.9% on the year in Q1, which corresponds to a quarterly decline. We expect Q2 GDP growth to pick up in comparison with Q1, as capital outflow slows and industrial production rises. Nonetheless, downside risks have increased notably since tensions with Ukraine escalated. So we have downgraded our forecast for growth this year from 1.9% in the February edition to just 0.2%.
Inflation in April and May stood at 7.3% and 7.6% respectively, higher than we had expected. This was due in large part to depreciation of the rouble. Since the rouble seems to have stabilized, inflationary pressures should ease in H2 2014. However, high inflation is likely to prevent the central bank from cutting policy rates before 2015.
In the medium term, the economy’s poor demographic profile and slow pace of reform will constrain real GDP growth to around 3.3%. A deal that will involve significant investment (around US$55b in total) in gas pipelines has led us to increase our medium-term forecast from 3% to 3.3%.
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