Will Russia's GDP start to growth?

 Will Russia's GDP start to growth?

The Russian Ministry of Economic Development expects Russia's GDP will start growing in the near future, the head of the department Alexey Ulyukayev said.

"The rates for end-use borrowers are being reduced, and the situation in the real sector of the economy is improving," he noted at a meeting with Japanese businessmen.

"If last year's production decline was 3.7%, in the first quarter of this year it dropped to 1.2%, in comparison to May it dropped to 0.8%, and we expect that the GDP dynamics will be positive in the near future," the head of Ministry of Economic Development stressed.

He noted that "in the sphere of industrial production we can already see positive dynamics: this also applies to the extractive industries and to the manufacturing industry from May 2016". At the same time, Ulyukayev admitted that "many problems remain".

The Economic Development Ministry's basic forecast, which is based on an average annual oil price of $40 per barrel, assumes the decline of Russia's GDP by 0.2% by the end of this year. However, the head of the department has already said that the GDP may show a slight increase, while maintaining the current price of oil in 2016.

Ulyukayev believes that it is likely that the ruble will continue to strengthen due to the changes in the balance-of-payments situation.

"The ruble exchange rate today is 62 rubles per dollar, i.e. it has significantly strengthened," RIA Novosti cited him as saying.

According to the minister, its peak increase was at the beginning of this year, when the Russian currency fell to 80 rubles per dollar.

The head of the Ministry of Economic Development said that "the outflow of capital from Russia amounted to $ 153 billion in 2014", it declined in 2015, but still was very high - $57 billion."

An associate professor of Stock Markets and Financial Engineering of RANEPA, Vasiliy Yakimkin, speaking with a correspondent of Vestnik Kavkaza, expressed an opinion that the country's GDP will begin to grow in six months.

"The GDP is growing primarily due to investments. In particular, Turkish investors have begun investing in Russia again. Secondly, domestic companies who has accumulated on their accounts a total amount of up to 4 trillion rubles have begun investing to the Russian economy. That is, in fact, companies are beginning to understand that it is more profitable to invest in your own business, than to keep money in banks," the expert explained.

Yakimkin named the stabilization of oil prices among the external factors, which positively influence the development of the Russian economy, due to which the economy will become even more attractive for investments.

"In principle, everything is in favor of Russia, and the industrial production has also suddenly grown. Foreign and domestic investments provide a very positive backdrop for the Russian economy. Of course, all this takes time, but in six months we will reach a positive GDP growth," he stressed.

Answering the question on how the ruble may strengthen in the near future, the economist said that the balance of payments has a positive effect on the national currency in the current situation.

"In a short term the dollar exchange rate will be about 60-70 rubles. If the oil price will grow by the end of the year, the ruble will also strengthen a bit. However, the Central Bank and the Finance Ministry are not interested in the fast strengthening of the ruble," Yakimkin noted, explaining that the Ministry of Finance uses the weak ruble to replenish the budget and the Central Bank makes the Russian exports more competitive.

A professor at the department of the stock market and investments at the Higher School of Economics, Alexander Abramov, in turn, suggested that the forecast of the head of the Economic Development Ministry is based on the growing industrial capacity indexes and the reducing capital outflow, which is a precursor to investment growth. "In addition, it is possible that the real incomes per capita increased, therefore, the consumer demand may also increase," the expert added.

In addition, he drew attention to the fact that it is premature to talk about the strengthening of the ruble, because the strong ruble is supported by the Ministry of Finance's currency sales from the Reserve Fund. "Therefore, it is early to link the growth of the ruble exchange rate with the balance of payments. At the moment, the situation with the balance of payments in terms of commodity payments is deteriorating, and in terms of the movement of capital is improving. And hopes are linked to the fact that the balance of payments will be stable due to the fact that the capital outflow declined. But there is no clear trend," Alexander Abramov summed up.


Vestnik Kavkaza

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