Business and Economic Numbers for the 2019 Budget9 November, 2018
Some key assumptions behind the 2019 budget
CEEMEA Business Group take the view that any new US sanctions in November 2018 and later in 2019 will prove moderate, mild and limited. Our forecast is based on this scenario. BUT there is no guarantee that this will be the case.
They also share the consensus view that the average price of a barrel of oil in 2019 will average above $70 and maybe as high as $75 in 2019. This means that Russian GDP will be 1.8% in 2018 with some slight possible upside and that level will be repeated in 2019 at 1.7%. This also means the rouble in 2019 will average 65 to 70 to the dollar and 75 to 80 to the Euro presuming the Euro-dollar rate is about 1.15.
Inflation will average 4.5% in 2019 and end 2019 at 4.8% with some marginal risk to either side. Real wages will moderate in 2019 at 3.0% growth as inflation rises and after a surge +8.5% average in 2018.
The rise in VAT to 20% and the announcements regarding changes in pensions will weigh down on consumer confidence a bit in 2019 and confidence actually worsened again in Q3 of 2018. This means that in 2019 consumer spending (+2.6%) and retail spending (+2.5%) will be steady at best and a bit down on 2018 trends.
On a middle scenario for sanctions and oil, economic indicators in 2019 will be moderate or slightly soft but will not damage business too much but equally will not provide any foreseeable boost.
If consumption moderates in 2019, then there may be some soft boost from government spending. This has been very tight in 2015-16-17 and in 2018. But President Putin announced in the spring general spending plans and since then the ministries have been working on how to achieve this.
Rather than cut into the budget surplus, the government looks to finance some of the new spending from the VAT increase and the future pension reform but this in turn is hurting confidence, spending and GDP growth.
The Central Bank raised the key interest rate to 7.5% in September and one more rise of 0.25% could happen before the end of the year if inflation continues to crawl up and the rouble comes under any sustained pressure from sanctions impact.
CEEMEA Business Group consider that business results out of Russia still rank among some of the best in the world. Rouble trends and the various sanctions crisis since April this year have hurt business at the margins and taken some of the shine off. 60% of companies forecast rouble sales in 2018 in a range of 5-15% with a big cluster around 7-13%.
27% of executives predict flat/negative sales growth in roubles in 2018 and this is the worse figure since 2015 but executives expect this to improve and decrease to 16% in 2019. Even in the super-good CEE markets, some 10-20% if companies report flat-negative sales.
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