Russia set to raise growth forecast despite sanctions threat

GMT 20:39 2014 Wednesday ,23 July

Arab Today, arab today Russia set to raise growth forecast despite sanctions threat

Russia's economy minister Andrei Belousov
Moscow - AFP

 Shrugging off the threat of additional Western economic sanctions, Russian officials indicated on Wednesday that the 2014 growth forecast is likely to be doubled.
"We are moving at a level of about one percent annual growth in GDP ... and are likely to stay there until the end of the year" senior Kremlin advisor Andrei Belousov was quoted as saying by Russian news agencies.
Russia's current 2014 growth forecast of 0.5 percent is set to be updated, and Economy Minister Alexei Ulyukayev said at a separate news conference that at this point "we're talking about an increase to the forecast".
Earlier this month officials said the Russian economy, which was buffeted by market uncertainty surrounding Moscow's annexation of Crimea and the outbreak of a violent pro-Russian separatist movement in eastern Ukraine, escaped entering a technical recession in the second quarter of this year.
Officials said they expected data to show the Russian economy remained flat in April through June, after having contracted by 0.3 percent in the first quarter.
The European Union and United States imposed in April only limited sanctions on Russia that target individuals and businesses.
But this hit sentiment and sparked massive capital flight which then prompted the government to lower the growth forecast after the Russian economy recorded 1.3-percent growth last year.
However, the tensions calmed and recent industrial production data has been encouraging.
"The current sanctions will not have a macroeconomic effect, it is a problem for specific companies," said Belousov.
But both the European Union and the United States are moving towards imposing sanctions on entire economic sectors, which some analysts see as likely by September unless the Ukraine crisis is resolved.
Analysts at London-based Capital Economics warned that the widespread presumption that Russia will prove resilient in the face of any additional sanctions could prove complacent.
"Even if the direct impact of sanctions is limited, the indirect impact can be significant," Chief Emerging Markets Economist Neil Shearing said in a recent research note.
He noted the sanctions could spark another increase in the flow out of the country and deter a rise in both foreign and domestic investment "that is needed to restore Russia's economy vigour over the long-run."
Belousov acknowledged the risk of such indirect effects and informal pressure on companies to reduce their exposure in Russia.
"Much worse for us, in my view, is the rise in uncertainty that sanctions cause, in particular soft sanctions, the signals that our business partners receive from various sources that doing business in Russia is dangerous as the US State Department could take actions...," said the Kremlin advisor.
In London, Berenberg economist Holger Schmieding said this week that "in a worst-case scenario, Russia could turn itself gradually into a paranoid pariah state with a crumbling economy and mounting internal tensions."
He said that "instead of modernising its economy with eager western capital and technology, Russia has now alienated the West."


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