Chief Russian economist warns that country's GDP may grow with significantly slower pace

The former Russian Finance minister Alexei Kudrin is quite skeptic about the country's economy. He warned that Russia's gross domestic product (GDP) may grow with "significantly" slower pace of 1% next year, despite the government's expectation for 1.3%.

The government expects GDP growth of 1.8% this year.

"Unfortunately, the slowdown in growth will be more drastic than expected by the government", said Alexei Kudrin, who now heads the Court of Auditors.

The architect of Russian fiscal policy during Putin's first two mandates became a favorite for investors, as he held the post of finance minister. He succeeded in stabilizing public finances and taking care of repaying the Russian debt, but had to leave the government seven years ago due to a conflict with President Dmitry Medvedev on military spending.

The fast economic growth is essential for Putin to prove if he is able to meet the election promises quickly enough, improving the standard of living and bring the country into the ranks of the five largest economies.

But the forecasts are getting darker despite the surge in oil prices. The threat of new US sanctions further exacerbates the risks to consumer spending, fueled by higher value added tax and plans to increase retirement age.

"Oil prices have no impact on growth and demand", said Alexei Kudrin, according to whom their effect on the economy "is practically exhausted".

In his words, investor caution, weaker currency and the surge of VAT are affecting the economy. The sanctions cost Russia about half a percentage point of GDP growth at a 1.8-2.0% jump.

At the same time, oil appreciation will not mean much to the economy, as uncertainty largely discourages companies from investing resources at their disposal. If their funds increase with the rise in oil prices, they will just prefer to target them to foreign assets.

"The leap of oil will simply boost the outflow of capital and will not focus on internal spending", said Alexei Kudrin. "There is no change in investor confidence in the economy. So far, the environment is pessimistic", added he.

But despite the damage caused by the sanctions, Kudrin said that most of Russia's problems are coming from the country itself, and they are "a matter of intra-institutional, structural reforms".

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Posted from my blog with SteemPress : http://financeandmarkets.com/chief-russian-economist-warns-that-countrys-gdp-may-grow-with-significantly-slower-pace/

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