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Economists: Russia faces economic downturn, higher inflation in 2019

Russian President Vladimir Putin held a meeting with the ministers of Defence, Justice, Interior, Foreign Affairs, and Emergencies and the Security Council officials to examine plans for reaching the socio-economic development targets. (en.Kremlin.ru/Released)

This article was originally published by Radio Free Europe/Radio Liberty and is reprinted with permission.

Russia faces an economic slowdown and higher inflation in 2019 due to the risk of new Western sanctions, a weaker currency, and a planned tax increase, a poll of economists and financial analysts conducted by the Reuters news agency shows.

Gross domestic product is expected to increase by 1.4 percent next year after expanding by 1.7 percent in 2018, Reuters reported on December 27, citing a “consensus forecast” of 17 experts surveyed in the monthly poll.

“The next year will be tough,” Reuters quoted Oleg Kuzmin, chief economist at investment bank Renaissance Capital, as saying.

Russia’s economic growth has slowed in recent years, hit by lower global oil prices, a weak and volatile ruble, and by U.S. and European Union sanctions imposed on Moscow since its takeover of Ukraine’s Crimea region in 2014.

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The seizure last month of three Ukrainian Navy vessels and their crews near the Kerch Strait prompted calls for more sanctions on Moscow.

The EU decided against further sanctions but extended existing ones targeting Russia’s defense, energy, and banking sectors through mid-2019.

The United States has also raised the possibility of more sanctions for what U.S. officials have called Moscow’s “malign activities.”

The Reuters monthly poll showed analysts expected inflation to exceed its 4 percent target and to accelerate to 5 percent by the end of 2019.

In 2019, the ruble will also feel pressure from the central bank’s plan to resume buying foreign currency for the state reserves, the poll showed.

Moscow is also planning a VAT hike to 20 percent from 18 percent.

Kuzmin said that in 2019, “Economic growth will slow amid an increase to the value-added tax (VAT) [and] higher inflation and lending rates.”

The poll comes a week after President Vladimir Putin, who started a six-year fourth term in May, painted a positive picture of the economy at an annual press conference.

Putin repeated his call for a “breakthrough” that would bolster the economy and improve living standards, but offered few details about how to achieve it.