Russia Increases Key Economic Projections, Anticipates Higher Year-End Inflation By Reuters

By Darya Korsunskaya

Forecasts from Russia’s economy ministry indicate a significant improvement in the country’s economic outlook for 2024, driven by a sharper increase in capital investment. However, persistent inflation may limit the positive effects of rising household incomes.

The growth of Russia’s economy heavily depends on extensive government spending on military production, as the nation continues to finance its military operations in Ukraine. This spending has resulted in increased wages within a competitive labor market, leading to strong consumer demand despite interest rates being set at 18%.

Finance Minister Anton Siluanov announced that the government anticipates a 3.9% increase in gross domestic product (GDP) for 2024, a notable rise from the 2.8% forecast issued earlier in April. These projections surpass expectations from analysts, who predict a 3.6% growth.

Following a 3.6% growth in 2023 and a 1.2% contraction in 2022—during which the economy faced multiple Western sanctions over the Ukraine invasion—Russia expects another two years of robust economic growth.

Nonetheless, inflation is also expected to rise, with the ministry forecasting an annual rate of 7.3% by the end of the year, an increase from the April estimate of 5.1% and close to the 7.4% recorded in 2023. This follows a substantial 11.9% rise in prices during 2022.

The ministry has significantly revised its outlook for real wage and disposable income growth, forecasting them to rise faster than overall economic growth and labor productivity. This trend is anticipated to further boost consumer demand, compounded by record government spending and the depreciation of the ruble in 2023, which has contributed to inflationary pressures.

Despite several interest rate increases by the central bank, raising the rate to over 18%, inflation is not expected to return to the bank’s 4% target until at least 2026.

The ministry has also upgraded its growth forecasts for retail trade turnover, capital investment, and industrial output in 2024. These improvements are largely based on elevated expectations for Russia’s energy exports, with anticipated increases in oil and gas prices compared to earlier predictions.

The ruble is projected to stabilize slightly stronger than previously expected, averaging 91.2 per dollar this year and 96.5 next year. It is predicted that the ruble will end 2026 at 100 per dollar and continue to weaken into the triple-digit range in the following years.

The forecast suggests that Russia’s competitive labor market will persist, with unemployment projected to remain at a record low of 2.6% until at least 2030. This stability comes despite the significant number of individuals who have either departed the country or joined military service since the onset of the Ukraine conflict.

The economy ministry’s forecasts for 2024 through 2027 include the following indicators:

• Oil price: $82.6 (2023), $83.5 (2024), $81.7 (2025), $77.0 (2026), $74.5 (2027)
• Export price for Russian oil: $64.5 (2023), $70.0 (2024), $69.7 (2025), $66.0 (2026), $65.5 (2027)
• Dollar/rouble exchange rate: 84.7 (2023), 91.2 (2024), 96.5 (2025), 100.0 (2026), 103.2 (2027)
• Exports: $424.5 billion (2023), $427.6 billion (2024), $445.0 billion (2025), $455.2 billion (2026), $476.2 billion (2027)
• Imports: $302.9 billion (2023), $294.9 billion (2024), $321.9 billion (2025), $342.6 billion (2026), $357.4 billion (2027)
• Trade balance: $121.6 billion (2023), $132.8 billion (2024), $123.0 billion (2025), $112.7 billion (2026), $118.9 billion (2027)
• Current account balance: $50.1 billion (2023), $51.2 billion (2024), $36.4 billion (2025), $23.2 billion (2026), $25.1 billion (2027)
• GDP growth: 3.6% (2023), 3.9% (2024), 2.5% (2025), 2.6% (2026), 2.8% (2027)
• Industrial output growth: 3.5% (2023), 4.0% (2024), 2.0% (2025), 2.4% (2026), 2.6% (2027)
• Year-end inflation rate: 7.4% (2023), 7.3% (2024), 4.5% (2025), 4.0% (2026), 4.0% (2027)
• Capital investment growth: 9.8% (2023), 7.8% (2024), 2.1% (2025), 3.0% (2026), 3.3% (2027)
• Retail trade turnover growth: 8.0% (2023), 8.6% (2024), 7.6% (2025), 6.1% (2026), 4.1% (2027)
• Real wages growth: 8.2% (2023), 9.2% (2024), 7.0% (2025), 5.7% (2026), 4.1% (2027)
• Real disposable incomes growth: 5.8% (2023), 7.1% (2024), 6.1% (2025), 4.6% (2026), 3.4% (2027)
• Unemployment rate: 3.2% (2023), 2.6% (2024), 2.6% (2025), 2.6% (2026), 2.6% (2027)