Russia revises down 2018 growth outlook over VAT rise

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MOSCOW, July 4 (Xinhua) -- The Russian Economic Development Ministry on Wednesday revised its 2018 economic growth forecast down to 1.9 percent from the previous 2.1 percent due to an expected hike in value-added tax (VAT).

However, should the Russian government succeed in implementing measures to accelerate economic expansion, GDP growth would exceed 3 percent in 2021-2024, it said.

The State Duma, the lower house of Russia's parliament, on Tuesday passed in the first reading a bill raising the VAT rate on most goods and services starting in 2019.

Because of the VAT hike, the Economic Development Ministry said, inflation would accelerate to 3.1 percent by the end of this year from the current 2.3 percent, and it may reach 4.3 percent by the end of 2019, higher than the central bank's forecast of 4 percent.

Growth would remain at the level of 1.5-2.0 percent in the worst scenario, it said.

In 2020, consumer price growth would slow down to 3.8 percent, it added. 

The planned increase in the VAT rate to 20 percent from 18 percent would lead to a temporary acceleration of inflation as goods and services, subject to the base VAT rate, account for 76 percent of Russia's consumer basket, it said.

The bill has to go through two more readings at the Duma, then get approval from the Federation Council, or the upper house, before being signed into law by Russian President Vladimir Putin.

"The GDP (gross domestic product) year-on-year growth may slow down to below 1 percent by the second quarter of 2019 and it is forecast to be at the level of 1.4 percent in the full year of 2019," the ministry said in a report.