Reuters Poll: Russian economy seen contracting 1.5 percent this year despite oil boost

MOSCOW (Reuters) - Russia’s economy will decline by 1.5 percent this year despite a recent rally in oil prices, as inflation concerns and weak government finances limit room for monetary or fiscal stimulus, a Reuters poll predicted on Thursday.

Customers visit the 'Garden' department at a store of the OBI retailer in the suburbs of Moscow, Russia, April 6, 2016. REUTERS/Maxim Shemetov

The growth forecast is slightly worse than in last month’s poll, when surveyed analysts predicted a 1.3 percent decline in gross domestic product this year.

Analysts are not rushing to revise their growth forecasts upwards, although the price of Russia’s major export, oil, has gained almost 20 percent this month to reach 2016 highs.

“The incoming (macroeconomic) statistics don’t give foundations for significantly revising our forecasts, except perhaps for the rouble,” said Evgeny Lokhtyukov, head of sector and capital market analysis at Promsvyazbank.

He said he expected the pace of the GDP decline to diminish only gradually, with the economy held back by weak consumer demand because of falling living standards.

Retail sales fell by 5.8 percent year-on-year in March, a deterioration compared with a 4.3 percent decline in February, reversing an improving trend.

“The latest macroeconomic statistics for March showed there won’t be significant improvements anymore,” said Bank St Petersburg economist Olga Lapshina. “The economy needs additional stimulus.”

However, most economists believe the central bank will hold its main policy rate at 11 percent when it meets tomorrow because of continuing concerns over inflation.

The room for budgetary stimulus is also seen as limited as the government struggles to keep its deficit within a targeted 3 percent of GDP.

The polled analysts predicted inflation would end the year at 7.1 percent, down from last month’s forecast of 7.4 percent.

They had become notably more bullish on the rouble, which has rallied in recent weeks on the back of the stronger oil price.

The latest poll predicted the dollar would be worth 63.5 rubles in 12 months’ time, down from March’s 12-month forecast of 70 rubles per dollar.

“The rouble continues to be the best play among oil producers on a rising oil price,” said Danske Bank economist Vladimir Miklashevksy.

“We remain bullish in the long run as the free float is protecting Russia’s current account surplus and economy despite probably one more year of slump.”

Reporting by Kira Zavyalova, writing by Jason Bush