OREANDA-NEWS. September 03, 2009. Russia’s Ministry for Economic Development has raised its oil price forecast for budget purposes by US3/bbl for each year for the period 2009-2012, so that the oil price is expected to average at US 57/bbl in 2009, US 58/bbl in 2010, US 59/bbl in 2011, and US 60/bbl in 2012. Accordingly, GDP projections were increased as follows: for 2010 from 1.0% to 1.6% in 2010, from 2.6% to 3% in 2011, and from 3.8% to 4.3% in 2012, reported the press-centre of OTKRITIE FC.

View: The increase in expected oil prices means that expected fiscal revenues would be increased by ~0.5-0.6% GDP for this year and next year, making budget deficit expectations appear more moderate. But this may also increase pressure for an increase in expenditures in 2010. In recent years federal budget expenditures have grown at a very high pace in nominal rubles terms: +40% YoY in 2007, +26% YoY in 2008, while a +28% increase is planned for 2009.

Even though oil forecasts for 2010 look rather conservative, this is the only way the Russian Finance Ministry can attempt to maintain control of budget expenditures. With virtually zero growth scheduled for 2010, this is an arduous task. The respective increase in GDP forecasts is minor, but very logical, as higher oil prices also means greater ability to finance recovery. We still view the official GDP forecast as a little conservative and stick to our 2% growth forecast or 2010.