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Moscow Times
April 10, 2003
IMF Cuts Outlook for Russia, World
By Victoria Lavrentieva
Staff Writer

The International Monetary Fund on Wednesday doused optimism among government officials that the country's economy could buck the global economic downturn with robust growth this year in spite of the war in Iraq.

Having said last week that it would do so, the IMF scaled back its forecast for Russian economic growth this year as part of revisions to its global outlook.

The IMF revised expectations for gross domestic product growth this year from 4.9 percent to 4 percent, citing the country's vulnerability to oil price fluctuations. For 2004, the fund's forecast for growth is lower still, at 3.5 percent.

The IMF's move came as something of a surprise to analysts, many of whom had recently upgraded their expectations for economic performance. The government's official forecast is 4.4 percent, but key officials have said they expect the country's GDP to grow by 5 percent this year.

Commenting on its rationale for lowering the outlook, the IMF said in a statement that "the boost from higher oil prices is more than offset by slowing investment in the non-oil sector."

The fund also noted that the pace of structural reform in Russia slowed last year, which reflects "resistance from vested interests and, in energy exporters, the easing of financial constraints associated with higher oil prices," the report said.

The IMF's Moscow office could not be reached for comment, but a source close to the fund attributed the disparity of predictions to the difficulty of accurately calculating Russia's economic performance.

"To a large extent, the IMF trusts the opinion of its Moscow office and their understanding of the situation," the source said.

Al Breach, chief economist at Brunswick UBS Warburg, said he had no intention of revising down his GDP growth forecast of 6.5 percent, adding that he expects growth to accelerate throughout the year.

"There is huge momentum for growth, with [the number of] people investing money and credits into the real sector increasing dramatically due to low interest rates," he said. "I think the IMF is just not picking up on that acceleration."

Aton brokerage recently upgraded its 2003 forecast to 4.8 percent. Aton's chief economist, Peter Westin, said he thought high oil prices and ruble appreciation might impede the diversification of the economy, but they both have a net benefit on growth.

"I think the IMF is wrong," he said. "But in general, it does not matter, because investors look at other factors when they talk about Russia these days," Westin said.

Though the IMF's outlook for Russia is dimmer than that of market players here, it is nonetheless brighter than for other parts of the world.

The new IMF report updated the numbers it published in September. In the new report, the fund shaved its forecast for 2003 global economic growth from 3.7 percent to 3.2 percent.

"Since the end of 2002, the pace of global recovery has slowed, particularly in industrial countries, amid rising uncertainties in the run-up to war in Iraq and the continued adverse effects of the fallout from the bursting of the equity market bubble and the depreciation of the dollar," the IMF said.

The IMF's outlook for the United States this year, for example, was lowered to 2.2 percent growth from 2.6 percent, citing the risks posed by the country's ballooning budget deficit, which could exceed 5 percent of GDP if the war drags on much longer.

For the euro zone, the IMF slashed its forecast to 1.1 percent from 2.3 percent, as economic conditions in the single currency area have sunk to a six-year low. German GDP growth is now seen at 0.5 percent, down from last September's forecast of 2.0 percent.

Japan's growth forecast was narrowed to 0.8 percent from 1.1 percent, while Britain's forecast was lowered to 2 percent from 2.4 percent.

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