Risks in the oil market is too important to think about the spending of the NWF, said the head of Ministry of economic development

Maxim Oreshkin

The press service of the President of Russia

Risks in the world oil market is far too serious to think about spending money from the national welfare Fund (NWF), says the head of the Ministry of economic development of Russia Maxim Oreshkin. His opinion is quoted by TASS.

«We see very serious risks in the oil market. Us oil prices fell below $ 60 per barrel and if we go below 50 [per barrel], there is nothing to accumulate will not be so and discuss some news about the NWF is unlikely,» said Oreshkin in an interview with TV channel «Russia 24».

According to the Minister, the first thing to talk about changing the structure of the investment Fund abroad. «That is, support for large export projects that we have in our country is that we are implementing in other countries. Resource SWF in the first place should be sent for this purpose», — said Oreshkin.

According to the Finance Ministry, the NWF in July of current year has doubled and amounted to 7,867 trillion rubles, or 7.2% of GDP, equivalent to 124,137 billion.

The government of the Russian Federation until the end of 2019 will be determined by the criteria used to select projects for investment of funds of the NWF after it reaches the amount of 7% of GDP, said the first Deputy Prime Minister, Minister of Finance Anton Siluanov. Investment strategy suggests two ways: investments in foreign assets to avoid pressure on the exchange rate and inflation, or the internal assets in projects that generate additional investment demand of private business.

Minister Maxim Oreshkin also believes that Russia should solve the problem of accelerating the pace of economic growth, relying solely on their own strength. «The external economy is the main driver that will be able to pull the Russian economy. We need to focus solely on their own strength, and in terms of the phases of the credit cycle, primarily in consumer lending, the main source of growth in 2020 can only be investments,» the Minister said.

According to him, the global economic growth this year will be the weakest since 2009. «And hardly any serious acceleration of this growth in the coming years is expected. That is, we expect somewhere between 2.5% to 3% in the baseline scenario without any serious risk, without serious escalation of trade wars. In the risky scenario, all can be much worse,» — said the Minister.

As stated Oreshkin, Russia needs to implement a significant amount of structural changes in the economy, businesses to reduce costs, provide businessmen with affordable financing to improve the efficiency of Federal spending and companies.
According to the head of the MAYOR, the risks of short-term consumer credit cycle in Russia could be linked to monetary policy.

«But the long-term cycle we are only at the beginning of the climb. We have such markets as mortgage, corporate debt for companies is where the debt at lower interest rates can grow, and quite significantly, and create a serious wave of demand for real estate, construction and investments. Therefore, this long-term cycle we are positive,» he added.

Further deterioration of global economic situation on the background of trade confrontations is the key risk factor for Russia’s economic development in the years 2020-2022, said Oreshkin. «In 2019 the global economic growth, according to the Ministry of economic development, will fall below the level of 3% for the first time since 2009. Given the ensuing trade wars, which is an obstacle to world economic growth forecast was revised downward. The expected slowdown of world GDP growth to 2.5% in 2024», — he added.

The Minister also noted that «the global economy won’t be a factor contributing to the more rapid growth of the Russian economy».

Earlier Oreshkin said that the upcoming possible global crisis due to the trade war between the US and China will have a negative impact on Russia, but this crisis, the country most ready for crises 2008 and 2014 due to the implementation of fiscal rules and inflation targeting.

Another serious risk for the Russian economy is the growth rate of consumer credit. «In the absence of effective measures to limit the growth of the consumer loan portfolio with a high probability is implemented the scenario of a sudden stop consumer credit, which will be a sharp deterioration of the creditworthiness of borrowers with a further increase of the debt burden,» said Maxim Oreshkin. In his opinion, this could lead to a recession in 2021. Meanwhile, experts admit slipping into recession this year.

The Ministry of economic development, if the current pace of portfolio growth, a sharp reversal of trends can occur in 2021. In this case, the negative contribution of the debt burden of households in the growth rate of consumer spending will reach minus 6% in annual terms. «This means that even taking into account other compensating effects (DCT easing by the Bank of Russia) household spending on final consumption can be reduced to 4.5% year-on-year in real terms. The economy will go into recession. In such a scenario, in 2021 GDP will shrink by 0.6%,» concluded Oreshkin.

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