fdlx.com
Lower oil prices are expected to translate in the reduction in revenues to Russia's budget as soon as in the first quarter of 2016, and threaten to drag Russian economy down to lower depths, Russia's Vedomosti newspaper reported with reference to the World Bank analysts.
The forecast for Russia’s GDP drop in 2016 has been revised from 0.6% to 0.7%, with the economic outlook for 2017 also being worsened. The new forecasts are based on Brent oil prices at $51.9 per barrel in 2015 and $49.4 in 2016.
Last week, Brent crude oil fell below $37 per barrel, for the first time since December 2008. By the end of Friday, January futures slid to $36.8. Russian Urals oil was traded at $35.35.
The economic situation has "worsened a bit" against a backdrop of lower oil prices, Russian Economic Development Minister Alexei Ulyukaev admitted Friday. According to him, GDP measures in November were lower than preliminary estimates of the economic ministry. GDP declined for the first time since June, Ulyukaev said without giving further detail. Such economic performance is the reaction of the Russian economy to oil price volatility, the minister said, with a more sluggish than expected slowdown in the inflation, certifying that the consumer demand is declining more intensively.
Read alsoBrent oil slides to 11-year low as producers seen worsening glutHigher credit costs and inflation will depress domestic demand, slowing the economic recovery until the second half of 2016, according to the World Bank’s Lead Economist for the Russian Federation, Europe and Central Asia Region, Birgit Hansl. In November, the reduction in retail trade turnover accelerated to 13.1%, after a decrease of 11.7% in October, the worst result in 20 years, according to the Federal State Statistics Service. The World Bank predicts that the consumption will continue to fall in 2016 and will resume a moderate growth only in 2017.
The country’s GDP in 2016 will not grow, even with the oil price at $50 per barrel, while it is projected to contract by 1.5% with the oil price of $40, and even by 2.4%, if oil prices go further down, analysts of Bank of America Merrill Lynch predict. JPMorgan downgraded its forecast from a 0.5% growth to a decline of 0.2% (the bank has not updated forecast for oil prices, using a temporal reference price of $45 per barrel for Russia). Depending on the fiscal policy rigidity, GDP is projected to drop 2%-3% with oil prices at $40 per barrel, according to Morgan Stanley.
Read alsoRussia sees biggest decline in wages, retail sales since 1999The Russian Finance Ministry has drafted a state budget for 2016 based on a 3% deficit of GDP. The ministry based the 2016 budget on the oil price of $50 per barrel. According to its calculations, even with the projected price of oil at $50 per barrel, revenues will be lower by RUB 750 billion, with a deficit of 4.1% of GDP due to a stronger ruble. With oil prices staying at $40 per barrel, the revenue loss will reach RUB 1.6 trillion, with the deficit increasing to 5.2% of GDP.