Russian Economic Downturn Seen Deeper, Longer by Credit Suisse

Russian’s economic contraction, its first since 2009, will be deeper and last longer than previously estimated, according to Credit Suisse Group AG.

Real gross domestic product will shrink 3.8 percent this year and stay unchanged in 2016, Alexey Pogorelov, chief economist for Russia at the Zurich-based bank, said in a research note Friday. That compares with his earlier forecast for a 3.6 percent contraction in 2015 before a gain of 0.4 percent next year. The median of 47 economists surveyed by Bloomberg is for 0.3 percent GDP growth next year.

Russia is bracing for the longest downturn in two decades after a renewed slide in oil prices and the collapse of investment and consumer spending. The economy shrank 4.6 percent in the second quarter from a year earlier after a 2.2 percent drop in the first three months. Three “structural drawbacks” are weighing on the outlook, according to Credit Suisse.

The drop in oil prices “for an extended period of time will have an adverse negative impact on potential output due to underinvestment in non-energy sectors and limited mobility of capital,” Pogorelov said. “The second drawback is the ongoing forced deleveraging (due to Western sanctions that limit access to international capital markets) of public and private sector companies.”

Another factor is Russia’s “poor demographics, including the rising share of pension-age population, and the deterioration in the quantity and quality of
the labor force will limit the productive capacity of the economy,” he said.

That’s also been exacerbated by the ruble’s 50 percent devaluation against the dollar since the start of last year, which is making Russia “less attractive” for immigrants from former Soviet republics, Pogorelov said.

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