Forecasts for Inflation, GDP Increased

MTDvorkovich speaking to a business conference July 2. He said 2008 inflation would remain within the new forecast.
The Economic Development Ministry has raised its 2008 inflation forecast to 11.8 percent from 10.5 percent and revised its outlook for economic growth, Deputy Economy Development Minister Andrei Klepach said Monday.

The ministry sees 2008 gross domestic product growth at 7.8 percent, versus its earlier forecast of 7.6 percent. Economists see 2008 inflation at 13.3 percent and GDP growth at 7.8 percent.

"We believe there is a good chance to significantly lower inflation. We see that inflation rates are falling already. From a purely monetary point of view, we can make 11.8 percent or less," Klepach said.

"There are some upside risks linked to prices for fuel and food," he added.

The new forecast is just 0.1 percentage point lower than the 2007 inflation rate of 11.9 percent, underlining the government's target of bucking the rising inflation trend and dampening inflation expectations.

The new forecasts, which also include figures for 2009-2010, have been given to the Finance Ministry, which is working on a new three-year budget. The figures, once approved by the government, will serve as a basis for the budget.

The Finance Ministry has not yet confirmed the figures, but President Dmitry Medvedev's economic aide Arkady Dvorkovich told reporters that he agreed with the new numbers.

"Inflationary pressures are easing. We expect annual inflation within the targets set by the Economic Development Ministry," Dvorkovich said.

Inflation has become the government's main economic headache, fueled by lavish state spending ahead of parliamentary and presidential elections, as well as by rises in global food prices.

"We view inflation as the main short-term risk for the economy," Dvorkovich said.

An inflation rate exceeding the 2007 level will further fuel rising inflation expectations in the country and deprive the economy of long-term funds desperately needed to fix infrastructure bottlenecks and sustain economic growth.

Annualized inflation is currently running at more than 15 percent, but the government hopes that inflation rates will fall because of a high base effect and slower money-supply growth.

In May, a number of major foreign banks stirred investors' interest in the currency, predicting a massive appreciation of the ruble within months if the Central Bank were to meet its own inflation target of 10.5 percent.

Dvorkovich said the Central Bank has already done everything possible on the inflation front, bringing money-supply rates down to 31.2 percent on July 1, 2008 from 53.1 on July 1, 2007. He added that a further tightening posed risks for the economy and banks.

Klepach earlier said the country is facing an economic slowdown despite higher prices for oil, the main export commodity, which the ministry now sees at an average of $115 per barrel in 2008.

Inflation will probably slow to an annual 14.7 percent or 14.8 percent by the end of July, Interfax reported, citing Alexei Ulyukayev, first deputy chairman of the central bank.

Consumer-price growth decreased by 0.1 percentage point for the first three weeks in July, compared with the same period last year, Ulyukayev said, Interfax reported. "This trend will continue," he said.

Reuters, Bloomberg