Weighted risks: why the World Bank expects Russia's GDP to grow by 3% only by 2028

The World Bank (WB) improved its outlook for Russia's GDP growth in 2018 from 1.5% to 1.6%. This is stated in the organization’s report on the prospects for the Russian economy “How to maintain stability, double growth and reduce poverty by half?”.

“In 2018, we expect growth to accelerate slightly in the fourth quarter. It will be supported by consumption, which is growing due to an increase in demand for durable goods before the increase in VAT. The overall economic growth in 2018 is expected to be higher than in 2017 and will amount to 1.6%, ”the WB report says.

As Anna Kokoreva, deputy director of Alpari’s analytical department at Alpari, explained in a conversation with RT, one of the reasons for raising the forecast could be the positive dynamics of growth in the country's industry. According to Rosstat, in October, industrial production of the Russian Federation grew by 3.7% compared to the same period in 2017. As the expert expects, this figure can remain at a high level until the end of 2018.

In addition, high oil prices and the relative resilience of the Russian economy to external shocks also had a positive effect on GDP growth. This was in an interview with RT said the head of the analytical department of the company "International Financial Center" Roman Blinov.

“This year, oil prices were higher than the average, and the ruble exchange rate was somewhat more stable than previously expected. At the same time, judging by the general state of the world economy, a global recession associated with the development of the trade war between the United States and China, should not be expected this year. And external challenges, both general and private, were practically passed away with minimal losses, which has a positive effect on the results of the current year, ”explained Blinov.

At the same time, against the background of the World Bank’s optimistic assessment of the Russian economy in 2018, world lenders have somewhat worsened expectations on the dynamics of the country's GDP in 2019. Instead of 1.8% declared earlier, now the future growth of gross domestic product is estimated at 1.5%.

Experts interviewed by RT explain this assessment by the potential pressure on the economy in the new year from both external and internal factors. According to the Deputy Chairman of the Board of Loko-Bank Andrei Lyushin, some economic slowdown is possible due to the increase in VAT, as well as the threat of a decline in real incomes of citizens and an increase in gasoline prices. Anna Kokoreva added that the intensification of trade wars and the volatility of commodity prices can have a negative impact.

However, according to the World Bank, Russia will be able to weaken the effect of external shocks due to the relatively high level of international reserves ($ 460.6 billion at the end of September), a small amount of external debt (about 29% of GDP) and the recently established principles of macroeconomic regulation.

As for the internal risks for the economy, then, according to the Ministry of Economic Development, against the background of a possible acceleration of inflation, consumer price growth by the end of 2019 will still remain near the target mark and will amount to 4.3%. At the same time, the increase in real disposable incomes of the population will gradually accelerate in the coming years and will average 2% in 2019–2024, 2.5% in 2025–2030, and 2.7% in 2031–2036. This is stated in the forecast of the social and economic development of Russia until 2036.

Base preparation

World Bank experts expect that after a slight slowdown in 2019, by 2020 the Russian economy may accelerate. According to forecasts, at this point the corresponding GDP growth rate of the country will be about 1.8%.

“The growth prospects for the Russian economy for 2018–2020 remain modest, and GDP growth is projected at 1.5–1.8%. This suggests that the growth rate will remain below the average of developing countries (4.6%), and only in 2020 will it exceed the average level of developed economies (1.7%), ”the organization’s report says.

At the same time, as world creditors emphasize, by 2028 the growth of Russia's gross domestic product may reach 3%. In many ways, this will happen due to the positive dynamics of labor productivity, increasing the influx of migrants, increasing investments, changes in pension legislation, as well as improving the demographic situation.

As follows from the World Bank review, in order to accelerate Russia's GDP growth, it is necessary to implement the planned reforms. In this case, the transformations should be carried out not gradually, but simultaneously to achieve the maximum effect.

It is noteworthy that the assessment of the global credit organization differs from the official macro forecast of the Russian authorities. Thus, according to the expectations of the Ministry of Economic Development, the achievement of 3 percent GDP growth may occur as early as 2021. This difference in forecasts can be largely due to the fact that the World Bank, in its analysis, probably takes into account the risks to the global economy. The president of the All-Russian public organization of small and medium-sized enterprises “Support of Russia” Alexander Kalin said this in a conversation with RT.

“The World Bank sees that there is a threat to the growth of the entire global economy. Any complex market system will experience cyclical crises. We observed this in 2008, and many expect the situation to recur in the coming years. Therefore, the expected linear growth will be interrupted exactly in some year, after which the recovery period will begin, ”Kalinin noted.

According to the expert, to date, concerns are also growing regarding the implementation of the declared economic reforms in Russia in full. In order to achieve a positive result, Alexander Kalinin considers it necessary to reduce administrative barriers for business, to increase the export activities of companies, as well as the absence of an increase in tax burden in the country.

“We share the World Bank’s concerns, but it is necessary to draw conclusions from this study about what can be corrected in this situation. In order for the economy to grow by 3% per year, demand should grow at the same pace. This is possible at the expense of increasing domestic consumption, strengthening the state’s investment activity, mass export of Russian companies and creating a favorable business climate, ”Kalinin stressed.