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. Last Updated: 07/27/2016

Experts Forecast GDP Rise, if Pitfalls Averted




Statistical figures reported by the government show the economy is still on the growth track and analysts are unanimous that the upward trend has not yet fizzled out.


However, if macroeconomic figures improve only marginally this year, it could imply that a new recession is beginning to unfold, analysts say.


"If gross domestic product grows by some 2 percent this year, this will mean that inertia is the only force driving the economy," said Andrei Belousov, head of the Center of Macroeconomic Analysis and Short-Term Forecasts.


"2000 is going to be a technical year, in which end results will be determined by trends that started in the past," said Yevgeny Gavrilenkov, deputy head of the Bureau of Economic Analysis.


In their best-case scenarios some economists forecast growth of up to 3 percent, inflation of about 25 percent and an exchange rate of 33 rubles to 37 rubles per dollar by year-end. Such optimism comes on the heels of positive economic data reported by the government.


One of the most recent figures, reported by the Russian Statistics Agency this week, shows that unemployment declined to 11.7 percent at the end of 1999 from 12.4 percent in the summer.


Retail sales for December were up 3.4 percent on a yearly basis to 191.7 billion rubles ($7.1 billion). Throughout the whole year volumes of retail trade were down 7.7 percent to 1.72 trillion rubles ($72.4 billion).


Some components of GDP will grow at a faster rate than the overall economy, dragging it upward in 2000.


Belousov expected retail sales to increase some 4 percent this year, due to appreciation of the domestic currency in real terms and growth in household income.


Economists also believe exports and investments will grow at a faster pace. Last year capital expenditures were between 4 percent and 5 percent of GDP, according to independent estimates.


This surged from $3 billion in the first quarter of 1999 to $4.8 billion in the second quarter and $6 billion in the third.


The current population structure also gives the economy some breathing space. The growth of the economically active population is expected to outpace the increase in pensioners in the next five years and only in 2005 or 2006 will the trend be reversed.


Even the presidential election should not have a drastic economic impact.


"The Finance Ministry could hand some securities to the Central Bank," said Yevgeny Saburov, head of Institute of Investment Problems of Rosprom. "But I do not think the total amount of such a private placement will exceed 30 billion rubles."


However, all positive scenarios are based on the assumption the overhanging debt problem will not ruin the fiscal performance of the government.


"Forecasts will only be valid if inflation stays between 20 percent and 30 percent," Saburov said. "Price growth of more than 30 percent will trigger a run on the ruble and fuel inflationary expectations."


He said the government will then have to print 160 billion rubles, increasing the money supply by 55 percent, in order to buy dollars in the open market if international lending is not resumed before it is too late.


In that case prices could grow by 40 percent and the exchange rate could tumble to close to 40 rubles per dollar, Saburov said.


But even if the International Monetary Fund and the London Club do not rock the boat this year, most growth factors are gradually being wiped away by catch-up effects.


Industrial output surged 8.1 percent last year, but most of it occurred because enterprises refused to index salaries and used additional profits to replenish their working capital.


However, salaries started to grow last summer and natural monopolies began to raise prices, capping future growth based on cheap inputs. Economists say that, after seasonal adjustments, industrial output stopped growing last summer.


The purchasing power parity of the ruble is still 5.5 times higher in real terms than implied by the nominal exchange rate, but the currency started to strengthen in the middle of 1999, eating into the future profitability of exporters.


"We have one of the last opportunities to tackle structural issues in a stable environment," Belousov said.