Russia’s Economic Growth Rates are Close to Potential

Russian economy continues to grow at a level close to potential, receiving tangible support from exports. However, a certain slowdown of the global economy’s growth rates in recent months will in the short term contain Russia’s economic growth. These are findings by the authors of the new issue of Talking Trends, the Bank of Russia’s Research and Forecasting Department’s bulletin.

Statistics for nine months of 2018 confirm the presence of moderately positive trends in the Russian economy. Growth in economic activity has recently demonstrated signs of  acceleration after a brief summer pause.

Volatility in Russian markets has risen recently in the face of overall capital outflow from emerging market economies and the growing risks of tightening US financial restrictions. The Bank of Russia’s September decision to raise the key rate by 25 bp to 7.50% p.a. and suspend foreign currency purchases in the domestic market under the fiscal rule helped stabilise the financial market.

Inflation reached 3.4% in September; it is on course to stand at about the 4% target by the end of the year. Short-term inflation risks remain elevated; they are mainly associated with the recent weakening in the ruble and advance retail price hikes in the run-up to the VAT increase. The bulletin’s authors expect inflation to be in the range between 3.8% and 4.2% by the end of 2018.

Medium-term proinflationary risks are dominant over disinflation risks. They are associated with the effect of geopolitical factors, volatility in financial markets, expanding consumer lending, changes in inflation expectations and progressing skills mismatches. The Bank of Russia’s policy will help maintain inflation near 4% in the medium term.

The views and recommendations expressed in the bulletin do not necessarily reflect the official position of the Bank of Russia.