VIEWPOINT: GDP dynamics will improve, but our 2019 economic growth forecast could be revised down - BCS Global Markets
MOSCOW. May 20 (Interfax) - "The Russian economy grew 0.5% year-on-year in Q1 2019, demonstrating its most modest growth figures since Q4 2017. Growth proved substantially lower than our estimates (1%) and the official forecast (0,8%) and indicates a significant slowing relative to Q4 2018 (+2.7% year-on-year). This slowing was due to three factors: weak internal demand (especially in the consumer segment), a reduction in state defense orders and warm weather, which put pressure both on domestic and foreign demand for energy commodities. The OPEC+ deal on oil production cuts also did not buoy the situation. As a result, we are observing a synchronized slowing in all primary GDP components: consumtion, investment, state spending and net exports. The Russian State Statistics Service (Rosstat) will only publish detailed Q1 2019 data with a break-down of GDP in a month, in mid-June. GDP dynamics will improve, but our forecast for 2019 may be revised down. We expect that economic growth trends will improve in no small measure due to the harvest (it is expected that agricultural output this year will exceed figures for 2018), the base effect, and most importantly, due to growth in state spending. The last factors is directly correlated with the implementation of national projects initiated by the Kremlin, and should lead to a substantial increase in state infrastructure spending, highway construction and social projects. However, the slow launch of many of these programs means that their impact on macroeconomic indicators may be postponed until 2020 or even later. We must admit that all of this increases the risks of reduction for our 2019 GDP growth forecast of 1.5%, which is modest as it is. We will review and update our macro forecasts over the next three weeks," BCS Global Markets said in a report.
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