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Fitch downgraded its GDP growth forecast for Russia

Fitch ухудшило прогноз роста ВВП РоссииFitch has revised its March forecast.

The Russian economy will grow slower than expected earlier, it follows from the global economic Outlook, the international rating Agency Fitch. In 2018 the growth will amount to 1.8% against 2% expected by economists of the Agency in the March survey, RBC reports.

On a slower growth indicating the modest recovery of GDP in the first quarter of 2018 (1.3%, according to preliminary estimates from Rosstat). GDP growth will hold back the cautious fiscal policy and growing foreign purchases of foreign currency by the Finance Ministry, designed to isolate the ruble from the dynamics of oil prices, says Fitch.

Against the backdrop of increasing retail sales, real wages and lending to households, private consumption will remain a key driver of domestic demand, said Fitch. However, investment in fixed assets will slow down in the absence of major infrastructure projects. In may Alfa-Bank has warned that completion of construction of Crimean bridge (the facility was opened to vehicles on may 15) reset industrial dynamics in the second quarter. In addition, increased risk of sanctions could chill investment plans of the private sector, adds Fitch.

The Agency also lowered its forecast for Russia’s GDP in 2019 to 1.9% with the same 2%. Finally, in 2020, Fitch forecasts a slowdown in Russia to 1.5%, which would bring it closer to the long-term trend growth, estimated at 1.2%. But growth can be accelerated, allows Fitch, due to the increase in government spending on the new the may presidential decree. Earlier, the government estimated the cost of new challenges in the areas of health, education and infrastructure in at least 8 trillion rubles.

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Fitch joined other agencies and institutions that in unison reduced forecasts for the Russian economy from the world Bank to the Russian Ministry of economic development. In April, Moody’s said it expects GDP growth of Russia in 2018 is 1.6%. According to the Agency, the sanctions will slow economic growth (although only slightly) and will accelerate inflation, but the country’s credit profile will help to cope with the sanctions and expensive oil and continue to replenish reserves. In may the European Bank for reconstruction and development (EBRD) has lowered the forecast of Russia’s GDP growth by 0.2 percentage points, to 1.5% in 2018 and 2019. Among the main risks, the EBRD said the price of oil, the lack of reform of the business environment (which would have supported investments), geopolitical tensions and extension of sanctions.

In June, the head of the Ministry Maxim Oreshkin announced the worsening Outlook for economic growth from 2.1% to range of 1.6–2.1 percent. “The figure that we had in the March forecast, it falls into this range and is located on the upper border. There is a risk that growth will be lower. They are essential, but 2,1% as a whole remains within acceptable values,” said Oreshkin, explaining the reduction in forecast new anti-Russian sanctions, which caused volatility in the financial market, and the response of the Central Bank.

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Fitch has revised its March forecast of the ruble weakening in the conditions of outflow of capital and increased uncertainties related to the us sanctions. These factors will offset the positive effect of higher oil prices. The dollar in late 2018 will be 61 RUB. (in March Fitch was 58 rubles), and at the end of 2019 — 62 rubles per dollar (the March forecast of 59 rubles).

In late may, Nordea downgraded its expectations of the exchange rate of the ruble to the end of the year from 63 to 64 rubles per dollar. Prerequisites for the weakening of the Russian currency they are associated with the risk of reduction in price of oil due to production growth in the United States, as well as possible revision of the terms of the deal, OPEC, which is already almost secured the return of the oil market to target in terms of reserves.

In mid-may Morgan Stanley has warned in its forecast that a possible further tightening of US sanctions against Russian strategic state-owned companies could trigger a recession, which the country’s GDP will shrink by 0.5% in 2018. The negative effect of the new restrictive measures will not be able to offset even the increase in oil prices to $70 per barrel, analysts said the Bank.

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