Russia’s economy will expand at 0.5 percent next year, the International Monetary Fund said, cutting its previous growth forecast in half amid fallout from the conflict in Ukraine and a weaker ruble.
The Washington-based lender reduced its forecast for 2015 from 1 percent, and maintained this year’s estimate at 0.2 percent, according to Antonio Spilimbergo, the IMF’s mission chief for Russia.
Russia’s standoff with the U.S. and the European Union over Ukraine has heightened a slowdown in its $2 trillion economy. Sanctions have curbed Russian access to capital markets, sparked capital flight and weakened the ruble. President Vladimir Putin’s retaliatory ban on some food goods has stoked inflation. Capital outflows, estimated to reach $100 billion this year, will “moderate somewhat but remain high,” the IMF said in a statement today.
Russia’s central bank should keep its key interest rate above inflation, which is set to exceed the regulator’s target this year, Spilimbergo told reporters today in Moscow.
“The central bank of Russia should tighten policy rates further to reduce inflation and continue its path toward inflation targeting underpinned by a fully-flexible exchange rate,” the IMF said the statement.
The ruble has depreciated 17 percent against the dollar this year, the second-worst performer among 24 emerging-market currencies tracked by Bloomberg after the Argentine peso. The dollar-denominated RTS stock index has fallen 22 percent in 2014, while the benchmark Micex Index, which is denominated in rubles, has decreased 6.2 percent in the same period.
Consumer-price growth accelerated to 7.6 percent from a year earlier in August and has exceeded policy makers’ target for two years. The central bank increased its benchmark interest rate three times this year to 8 percent to battle inflation. It kept the rate unchanged at its last meeting Sept. 12, saying it may raise it in the future “if inflation expectations remain at the elevated level.”
Monetary policy makers see the economy growing 0.4 percent in 2014 after expanding 1.3 percent last year, the slowest pace since a 2009 contraction. The probability of a recession during the next 12 months has diminished to 60 percent from 65 percent last month, according to the median estimate of 27 economists in a Bloomberg survey.