“VEB in the basic version of the macroeconomic forecast laid the increase in the retirement age from 2020

The retirement age will increase gradually by six months a year

– Vnesheconombank on Tuesday released its forecast of economic development of Russia in the years 2018-2021, the basic version of which suggests the beginning of a gradual increase in the retirement age in Russia in 2020.

“In 2020 is expected to launch the pension reform, including gradual (months in year) increase in the retirement age (for men and women – if)” – describe VEB incorporated in the baseline scenario the expected reforms.

In this case, the forecast did not specify until what age in the model, the baseline scenario includes the increase in the retirement age in Russia (for the preparation of the medium-term forecast and is not required).

“Although the message of the President of the Russian Federation to the Federal Assembly proposed a return to outpacing inflation increases in pensions, apparently, the new rules of indexation of pensions will be one of the elements of the expected pension reform,” suggest the authors of the report (at the Bank forecast chief economist of Vnesheconombank and former Deputy economic development Ministry Andrei Klepach).

VEB noted that favourable for the Russian economy in 2017 was the agreement on limiting oil production OPEC+. “It is possible to increase the price of oil and, according to the Vnesheconombank to provide an additional economic growth rate by 0.2-0.3 percentage points,” lead the Bank in its calculations of the contribution of this agreement to the growth of the Russian economy (which amounted to 1.5% in 2017).

“The economic recovery remains fragile. In the third and fourth quarters of 2017 was observed a pause in growth or temporary stagnation… We believe that this mainly standing temporary factors and the situation in the beginning of 2018 will improve, however, the positive dynamics remains very vulnerable and fragile,” warning economists of the Bank.

The baseline scenario

The baseline scenario VEB “involves the development of the Russian economy in the next three years at a relatively favorable external conditions – expected sustainable growth of the world economy and the absence of a new significant wave of anti-Russian sanctions”.

“The net outflow of private capital from the Russian economy will decrease to $20 billion in 2018 – 2019 and will be fully depleted by 2021. The price of oil on average in 2018 will be $62 per barrel. In 2019, the removal of restrictions on production by OPEC and its associated oil producers will reduce the price of oil to $53 per barrel. In 2020-2021 years the price of oil will steadily rise to $57 – 59 per barrel” – describe VEB inherent in the underlying scenario assumptions.

“The baseline scenario shall be enough conservative and differs significantly from the consensus forecast in 2019, implying a smoother trajectory in oil prices,” – noted the experts of the Bank.

A significant factor in the development of the economy, according to the Bank, will be the world Cup in Russia. “If in 2018 he will give a positive contribution to economic growth outside of tourism, the growth of retail and services, in 2019 – will play in the opposite direction, lowering the growth rate due to the high base,” the analysts warn.

“The implementation of may decrees of the President on the indexation of public sector wages will support growth in revenues in 2018, but will also give negative effect in 2019,” the economists say.

The growth of Russia’s GDP in the baseline scenario of the Bank in 2018 is expected to reach 1.8%. In 2019 the economic growth, the Bank forecasts will slow to 1.1 percent “mainly due to the exhaustion of the above favourable factors operating in 2018, as well as the expected decrease in oil prices”. In 2020-2021 years GDP growth, according to the Bank, will accelerate to 1.7 – 2%.

The average annual exchange rate of the dollar in 2018, it is expected by the Bank at the level of 57.3 RUB “In 2019, the decline in oil prices will lead to some weakening of the ruble to 60.2 rubles to the dollar. In 2020-2021 years a resumption of growth in the cost of oil will return the exchange rate to values of about 57-58 rubles per dollar,” the Bank said.

The inflation forecast for 2018 is equal to 3.3%, for 2019 – 4,3%, in 2020 to 3.7% in 2021 and 3.7%.

“Low inflation will allow further moderate easing of monetary policy in the medium term. By the end of 2018 key rate in nominal terms may be reduced to 7%, and by 2020 will reach the level of 6-6,5%, which will continue in the coming year,” expect the VEB.

The Bank noted that in the medium term in the baseline scenario Russian economy will lag behind the growth rate of the world.

“In four years, Russia’s GDP in real terms will grow by less than 7%, while global growth is 16%. As a result, the share of Russia in the global economy may shrink in 2021 to 3.0% (PPP) versus 3.2% in 2017,” – said in a forecast.

“The Russian economy has a potential higher growth rate at the level not lower than 3-4% a year, but to achieve them requires the implementation of a package of measures, proposed in the President’s message to the Federal Assembly, and more active stimulating monetary and fiscal policies, consistent with structural change and structural maneuver in favor of infrastructure development, science and technology, and human capital. No modification of fiscal rules and substantial reduction in interest rates, combined with development of long-term financing of the economy to achieve growth rates above the world, it is impossible,” conclude the economists of the Bank.

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