Old World Optimists

The European Commission predicts economic growth for Russia already in 2010

The decline of the Russian economy may not be as deep as many domestic and foreign experts predict, and not very long-lasting. Next year the Russian economy will begin to grow. This positive view was demonstrated by the European Commission. The Representative Office of the European Commission in Moscow yesterday issued the most optimistic forecast for the short-term prospects for Russia's economic development since the beginning of the year.

“As a result of the global economic downturn, for the first time after ten years of steady improvement, Russian economic growth in 2009 is expected to be negative (minus 3.8%) and moderately positive in 2010 (1.5%),” it says in the forecast. For comparison: the International Monetary Fund predicts a decline in Russian GDP in 2009 of 6%, the World Bank - 4.5%, the Organization for Economic Cooperation and Development - 5.6%, and the European Bank for Reconstruction and Development - 7.5 %.

Even the Russian authorities look at the domestic economy more gloomily than the European Commission. So far, however, the official forecast for the decline in GDP is 2.2%, but the Ministry of Economic Development is working to revise it. The new version will be ready at the end of May. In the working version of the document, the fall in GDP in 2009 under the optimistic scenario will be 6%, which coincides with IMF estimates, and under the pessimistic scenario - 7.4%, as suggested by the EBRD.

But the most complimentary assessments in the European Commission's forecast relate to the Russian government's efforts to combat inflation. Inflation, according to the forecast of European officials, will decrease from 13.8% last year to approximately 10% at the end of 2009. None of the forecasters gave such positive assessments. Even according to the optimistic estimates of the Russian authorities, the price increase was considered to be around 13%. This macro indicator has not yet been recalculated, however, few experts estimate 13% as a realistically achievable figure. As a rule, we are talking about 15-20%.

Experts from the European Commission expect that “a slowdown in economic activity and lower prices for raw materials will soften the inflationary effect of the ruble devaluation.” However, price increases will continue to be in double digits. In addition, the European Commission believes, “a serious budget deficit, a significant increase in the unemployment rate and a decrease in the trade surplus and current account surplus are expected.”

As noted in the European Commission report, a sharp transition in the budget is expected from a solid surplus to a significant deficit - 6.5% of GDP in 2009 (by the way, the revised draft budget was drawn up based on a deficit of 7.4% of GDP) and 2.7 % of GDP in 2010. “This will happen due to a decrease in economic activity and prices for raw materials, as well as significant funds from the budget aimed at stimulating economic development,” explain European Commission experts.

The unemployment rate will also increase significantly, the authors of the forecast believe. In addition, Russia will face a significant decline in its trade surplus (from 10% of GDP in 2008 to 5.1% in 2009 and 6.3% in 2010), as well as its current account surplus (from 6% GDP in 2008 to 1.4% in 2009 and 2.7% in 2010).

Vera SITNINA