The Bank of Finland Institute for Economies in Transition (BOFIT) released today its semi-annual forecasts for the Russian and Chinese economies. The autumn 2019 forecasts cover the period 2019–2021.
Russia’s growth last year was spurred by transient factors, and growth is expected to subside to lower levels this year. The outlook for global economic growth darkened considerably over the summer and this is reflected also in the performance of the Russian economy. Growth slowed much more in the first half of this year than we anticipated in our April forecast. For all of 2019, we now expect growth of around 1 % p.a.
Otherwise, the outlook for the Russian economy in coming years is largely unchanged from earlier BOFIT forecasts. Stagnating real incomes and decelerating growth rates in household borrowing will supress private consumption growth. Government policies are unlikely to support private investments. Therefore growth in the years ahead will come largely from public consumption and net exports. Investments stipulated by government’s national projects will lift economic growth slightly, especially in 2020. Growth slows towards 1.5 % p.a. at the end of the forecast period.
China’s growth slowdown continues as labour force shrinks, allocation of capital is distorted and necessary structural reforms are postponed. Adding to this is the increased uncertainty from escalating trade tensions. Official figures suggest a relatively mild slowdown, showing GDP growth slowing to 6.3 % p.a. in the first half of this year from 6.6 % last year.
However, unreliable official statistics make assessing China’s actual economic conditions challenging. In line with our earlier forecasts, BOFIT expects China’s economic growth to slow this year by about one percentage point from 2018 and slow further in 2020–2021 by just under one percentage point a year. Given the large public-sector deficit and soaring debt-to-GDP ratio, room for stimulus is likely to be limited. The deteriorating financial positions of Chinese corporations and increasing financial market risks raise the likelihood of a faster growth slowdown.
BOFIT forecasts are available online.
For further information:
Laura Solanko, senior adviser, +358 9 183 2291 / laura.solanko(at)bof.fi (Russia)
Riikka Nuutilainen, senior economist, +358 9 183 2518 / riikka.nuutilainen(at)bof.fi (China)
Iikka Korhonen, BOFIT head, +358 9 183 2272 / iikka.korhonen(at)bof.fi (Russia and China).