Russia’s Central Bank has published the annual consumer price growth figures for last year, they reveal that inflation remained at a historically low level, despite the fact that food prices were under added pressure from a poor harvest added. The Voice of Russia discussed the country’s 2013 growth prospects with Dr. Murat Ulgen, chief economist, Central & Eastern Europe and sub-Saharan Africa at HSBC in London.
VOR: How do you assess the current economic situation in Russia? Is it in line with your earlier estimates? Murat Ulgen: Russian economic activity is slowing, but more gradually than a sharp fall as we are seeing in Central and Eastern Europe. Having said that, 2012 growth we estimated at 3.4% and this year at 2.5%. The reasons for a slowdown include, first of all, the fact that global oil prices have been on a gradual retreat, so you are not getting any additional impulse from there that could lift Russia’s growth. Secondly, inflation has gone up and it is eating into real disposable incomes and real wages. I mean, real wage growth is still positive, but less strong because of rising inflation. The third aspect is that the fiscal environment was very supportive and was very conducive to higher growth, especially in the early part of last year, but it is growing less supportive. For all of these reasons, we see Russia’s economic growth slowing and this development is in line with our earlier forecast. VOR: Do you expect inflation to pick up in the course of 2013? Murat Ulgen: In the first half of the year we do predict an increase. We actually see inflation going up to 7.4% in the first three months. Then starting from the second quarter, we expect inflation to moderate, edging back to 7% in the second quarter; and then we anticipate consumer price growth in Russia will fall sharply to 6.3% in the third quarter and 5.7% in the fourth quarter. VOR: Could you compare present economic conditions in Eastern Europe to those in Russia? How do you expect the situation to unfold over the course of the year? Murat Ulgen: I would actually say the situation is a lot worse in Central and Eastern Europe compared to Russia, especially in countries like the Czech Republic, Hungary, Poland and Romania. Those nations are obviously much more dependent on the euro zone than Russia. They depend on the euro zone as a trade and financing channel. Speaking of Russia, dependence on Europe is not small, but it's not as large as in Central and Easter Europe. On top of that Russia has a very large domestic market, and domestic demand is doing considerably well. Another factor is that Russia has been diversifying more towards Asia; compared to five or ten years ago China’s role as Russia’s trading partner has grown. China has actually trumped Germany, as Russia’s main trading partner. Source: Voice of Russia
