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Morgan Stanley cuts Russia’s growth forecast on global slowdown

Published time: August 15, 2012 16:58
Edited time: August 15, 2012 20:58
AFP Photo / Emmanuel Dunand

AFP Photo / Emmanuel Dunand

Investment bank Morgan Stanley has cut Russia’s economic growth forecast for 2012 from 5 per cent to 4.2 per cent, saying Russia’s economy will expand slower next year than was previously estimated.

­Gross domestic product will advance 4.2 per cent this year and 3.7 per cent in 2013, according to Morgan's estimates. The downgrade comes as the global economy faces a deeper downturn.

Russia’s inflation will also rise from 6.5 per cent to 7.2 per cent, the bank says, as a result of low crop yields and higher food prices. However, the bank forecasts that inflation in 2013 will remain the same – 5.5 per cent.

Russia, the world’s largest energy exporter, is relying on domestic consumption as Europe’s debt crisis and a Chinese slowdown sap global demand for raw materials, the report says.

The main channel of contagion would be through lower oil prices and a weaker ruble. This would lead households to reduce spending and increase savings, says Morgan Stanley economists.

Urals crude, Russia’s chief export blend, is down almost 9 per cent since this year’s peak of $125.26 a barrel in March, trading at $114.24 today.

According to the bank's estimates, growth may rebound in the next two quarters due to a strong labor market supporting consumer spending. Russia’s entry in the World Trade Organization is also boosting confidence.

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