Brussels is expecting the Russian economy to grow faster this year, citing surging oil prices as the main driver.
“The impact of higher oil prices recirculating throughout the economy is likely to further support domestic demand and thereby GDP which is expected to grow by 1.7 percent in 2018,” the Commission said in its recent forecast, published on Thursday.
The European Commission also expects that by 2019, the growth rate may fall to 1.6 percent of GDP, reflecting the long-term consequences of Western sanctions. “Growth is expected to edge down slightly to 1.6 percent in the outer year of the forecast horizon, reflecting subdued productivity growth and lingering effects of sanctions.”
Oil has significantly strengthened in the last week, with Brent benchmark rising above $70 for first time since 2014. On Thursday, it was trading near the $73 per barrel mark, while the US West Texas Intermediate was slipped below $68.
Real wages in Russia are growing after three years of declines with indexation of public employees’ salaries. “Uncertainties surrounding the geopolitical situation and the impact of the recent US sanctions on investors’ confidence remain the key downside risk facing the economic outlook for Russia, while higher oil prices and stronger wage growth are the major upside risks for the growth outlook,” the European Commission said.
The EC forecasts inflation in Russia to be 3.7 percent this year, and four percent in 2019, which corresponds with the target of the Central Bank. The CBR’s key interest rate may be slashed cut from the current 7.25 percent, the report says.