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Russian Finance Ministry Downgrades Growth Forecasts; Water, Sewage Industries to Be Hit Hard

MOSCOW, Russia

On April 11 the Russian Ministry of Finance again downgraded its growth forecasts for the country’s economy this year. It is now expecting growth of just 2.4 percent over the course of 2013, which is expected to be approximately equal or just below the rate of inflation.

This is less than half of the Government target of 5 percent growth, and the weakest since the economic crisis in 2009. The cause of the slowdown is reduced demand for Russian exports, primarily oil and gas, in markets with their own economic problems such as the European Union.

Since the announcement, financial analysts have predicted that the water and sewage industries will be among the hardest hit by the effects of such restricted growth.

The decline in consumer spending that is expected to result from falling growth could mean more people falling behind on their water bills. Many Russian water companies, especially in the remote provinces, are already struggling to balance their income and expenditure.

This will be made more intense by the continued effects of inflation, which is not expected to decrease much. With costs continuing to rise but income falling, the coming year may see many utility companies slide into the red on their primary business functions.

The Central Bank is expected to lower interest rates to support industry and this will have a positive effect on the many highly indebted vodokanals (water companies), but it will not be enough to offset the lost earnings from increased default.

In addition, major cities across Russia are expected to grow much faster than the national average of 2.4 percent, while economic activity in rural and remote areas will be more sluggish. This will increase the already wide gap between water companies’ service provision in places such as Moscow and St. Petersburg and the rest of the country.