Russian Economy Decline to be Followed by its Slow Growth

Russian Economy Decline to be Followed by its Slow Growth


According to the Ministry of Economic Development, the key economic indicators in the Russian Federation have significantly improved compared to May of this year. In particular, it refers to the dynamics of GDP, as well as the incomes of the population.

Meanwhile, the agency specified that the beginning of next year might have “the most negative case” scenario in terms of unemployment and economic growth. According to the draft basic parameters of the scenario conditions of economic development in 2023 - 2025, GDP will decrease by 4.2%, while in May this year the Ministry of Economic Development forecast economic decline by 7.8%, and in April the head of the Accounts Chamber Alexei Kudrin generally assumed its decline by 10%.

However, next year the recession is likely to be deeper than expected in the Ministry of Economic Development. Thus, in May, it will be 2.7% against the expected 0.7%, with the greatest decline in the economy expected in the first quarter of 2023.

Chances are that only in 2024 - 2025, the Russian economy will achieve “the best case scenario” and will grow by 3.7% and 2.6% respectively, and only in 2025 will it return to its pre-crisis level.

In addition, the Ministry of Economic Development has included an annual weakening of the ruble in its scenario. Thus, in 2022, the average annual rate is expected to be 68.1 rubles per dollar, while in three years it was 74.8 rubles per one U.S. dollar.

Also, according to estimates of the Ministry of Economic Development, the fall of imports by the end of the year will be 6.4%, while in May the forecast was 17%. The ministry explained that the figure is gradually recovering, although at the expense of consumer imports, rather than parallel imports.

The trade surplus will reach a historical maximum. According to the Ministry of Economic Development, it will amount to $299.6 bln, while the current year's surplus is $239.8 bln. By the way, the Bank of Russia has approximately the same surplus of $243 bln.

ING Bank economist Dmitry Dolgin believes that the softening of the forecast is due to the unfulfilled expectations of a sharp decline in exports. According to him, the EU embargo will come into force only at the end of the year, and the Russian industry will not show a decline thanks to the “accumulated import reserves” of components and the establishment of “alternative supply” channels.

According to Alexander Isakov, chief economist for Russia at Bloomberg Ekonomics, the spring forecasts “could have come true” if the stability of the financial system had been undermined. In his opinion, these were the risks associated with the possibility of a systemic crisis, as well as the loss of confidence of businesses in each other, and the population in banks. Isakov believes that the forecast of the Ministry of Economic Development for 2022 is “excessively conservative and optimistic” for the next few years.

To his opinion, GDP will lose no more than 3.5-4% this year and 2% in 2023, and, nevertheless, the further recovery “will not go by the post-consumer scenario of rapid normalization.” As Isakov explained, what we are witnessing is “not a one-time decline in demand,” but a transformational recession, but it will be followed by a slower (1 - 1.5%) recovery growth, when “the decline of some sectors and enterprises is only partially compensated by the growth of others.”

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