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Russian economic growth will slow in 2019 due to planned tax hike


Reuters


By Polina Nikolskaya and Darya Korsunskaya

MOSCOW, June 27 (Reuters) - Russian economic growth will slow next year as a planned tax rise stokes inflation and trims real wages, and amid continuing tight central bank monetary policy, a government source said on Wednesday.

After his inauguration in May, Russian President Vladimir Putin ordered the government to bring the Russian economy, which began to recover in 2018 after two years of recession, into the top five world economies by 2024.

The economy ministry has cut its economic growth forecasts and now expects gross domestic product (GDP) to grow by 1.4 percent in 2019 compared with the 1.9 percent growth projected for this year, the government source familiar with the new set of forecasts said.

In forecasts released in the second half 2017, the economy ministry had anticipated GDP growth of 2.1 percent and 2.2 percent in 2018 and 2019, respectively.

The government proposed to raise value-added tax (VAT) to 20 percent from 18 percent from 2019, an increase that can add at least an extra 600 billion roubles a year to government revenue.

The Bank of Russia said this month the room for lower interest rates had shrunk after the government VAT proposal and warned higher taxes would translate into inflation.

"The acceleration of inflation will affect the incomes of the population, the consumer spending. We see a negative effect, which will be especially felt in the first half of the (next) year," the source said.

The source also said the economy ministry expected the Russian rouble to average around 61 versus the dollar this year, weakening to an average of 63-64 in 2019. This compares with 63.07 on Wednesday afternoon.

The economy ministry declined to comment. The updated forecast is yet to be approved by other ministries.

The economy ministry sees annual inflation at 2.1 percent in June and at 2.9-3.1 percent by the end of 2018, the source said. According to the new forecast, annual inflation will accelerate to 4.5 percent in the first quarter of 2019 and will be 4.3 percent by the end of 2019.

Real wages will be down to around one percent in 2019 from 6.3 percent in 2018 because of accelerating inflation and a slowdown in economic activity, the source said.

The economy will start to recover once the government increases its investments in infrastructure, the source added. Gross domestic product is currently expected to rise by more than two percent in 2020 and by around three percent in 2021.

The economy ministry sees capital outflow declining gradually towards zero by 2024 from $25 billion in 2018, the source added.

The ministry's new forecast sees the price of Urals crude oil at $63.4 per barrel in 2019, gradually declining to $53.5 by 2024, the source added.

($1 = 63.1300 roubles)




This article appears in: Politics , Stocks , World Markets , Economy



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