Central Bank: economic growth to re-accelerate in second half of 2019

Central Bank: economic growth to re-accelerate in second half of 2019
Photo: NVO

January's VAT hike contributed to an overall economic slowdown in Russia, but the Central Bank believes that the situation is predictable and controllable. The regulator expects the economy to show better results later this year.

The Bank of Russia expects the country's economic growth to pick up in the second half of 2019, says Xinhua citing First Deputy Governor of the Central Bank Kseniya Yudayeva. According to Yudayeva, there is no reason to doubt that economic growth will begin to accelerate again when fiscal measures are applied. However, she did not specify what fiscal measures would be introduced to spur the growth. Earlier, the regulator claimed that newly received budgetary funds would be allocated to increase government spending, including investment.

The Central Bank expects the slowdown of economic growth to continue through the first half of the year, but the situation is predictable and controllable, said Yudaeva. A month earlier, the regulator predicted that GDP growth would slow down to 1,2-1,7% this year, given a 2% increase in value added tax (VAT), which was expected to have ''a slight constraining effect on business activity, mostly early in the year''. However, the worst scenario did not come true, said Yudayeva assessing the current situation.

A rapid price increase registered at the end of 2018 and the beginning of 2019 affected a list of commodity items, primarily foodstuffs, but now correction of prices helps to stabilise inflation. Overall, prices rose more slowly and smoothly than expected in response to higher VAT, while ''many one-off factors acted in the opposite direction'', considers Yudayeva. The stronger ruble, which has appreciated since the beginning of the year, also affects the inflation situation favourably.

According to Kseniya Yudayeva, economic growth will begin to accelerate again when fiscal measures are applied. Photo: kremlin.ru

Last year, Russia's economic growth amounted to 2,3%, which exceeded expectations of both the Central Bank and the Ministry of Economic Development. The results turned to be so impressive mainly due to a reassessment of construction growth. After Russia's Federal State Statistics Service revised data for the first 11 months of 2018, the figure jumped to 5,7% from 0,5%. Authorities attributed such explosive growth to massive construction in Yamalo-Nenets Autonomous Okrug. Later, the Ministry of Economic Development explained that GDP growth had been boosted by one-time factors and predicted it would slow to 1,3% in 2019.

Economists have also been sceptical about the 2019 GDP figure, saying it did not represent broader economic trends. According to Andrey Movchan, an economist at the Carnegie Moscow Centre, Russia currently has none of ''sustainable growth drivers such as higher investment, low capacity utilisation, rising households' incomes, which with some delay filters into consumer demand, which drives the economy''.

By Anna Litvina