Coup by lifting – Newspaper Kommersant No. 18 (7463) dated 02/01/2023
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The International Monetary Fund (IMF) has revised its assessment of the dynamics of Russia’s GDP for 2023: a decline of 2.2% was previously expected, now the fund expects growth of 0.3%. The IMF does not directly name the reasons for the improvement in expectations, but considers the raw material embargo against the Russian Federation to be ineffective, and the global growth forecast slightly worsened. “Coups” in expert assessments show, first of all, the scale of uncertainty and the changes that have taken place in world markets in 2020-2022, as well as the movements expected in 2023-2024.
The growth rate of the global economy will slow down from 3.4% in 2022 to 2.9% in 2023, follows from the update of the IMF macro forecast (the estimate is increased by 0.2 percentage points (pp) compared to October). Growth is projected to accelerate to 3.1% in 2024. Global inflation could also slow down from 8.8% to 6.6% in 2023 (and 4.3% in 2024, before the pandemic, the figure grew by an average of 3.5% per year), while core inflation in many countries has not yet peaked. The main factor in improving the global forecast was the increase in expectations from the Chinese economy amid the lifting of coronavirus restrictions in the country, while higher central bank rates and the consequences of the conflict in Ukraine are holding back global GDP growth. The slowdown in inflation, in turn, is facilitated by lower prices for oil – this year they are expected to decline by 16% (after rising by 40% in 2022) – and for other types of raw materials (by 6.3% after rising by 7%) .
For Russia, the IMF forecast turned out to be unexpectedly positive. Noting that the decline in Russia’s GDP in 2022 turned out to be less (2.2% versus 3.4% in the October forecast of the fund), the IMF made a forecast for the growth of the Russian economy by 0.3% in 2023 (against a decline of 2.3% in the previous forecast and a 3.3% decline in the World Bank’s January forecast).
The IMF assessment turned out to be even more positive than the expectations of the Russian authorities – the Ministry of Economy expects a reduction in the Russian GDP this year by 0.8%, and the Bank of Russia – by 1-4% – and the Focus Economics consensus (in January 2023 – minus 3%) ; the new consensus forecast of the Russian Central Bank will be published this week.
The Ministry of Economy almost immediately announced the “convergence” of IMF estimates with Russian ones.
Directly, the dynamics of estimates for Russia in the IMF forecast, apparently, is not related to the dynamics of world growth – in developed countries, growth rates this year will slow down to 1.2% against 2.7% a year earlier. In particular, in the US, growth is expected to slow down from 2% to 1.4% (forecast improved by 0.4 percentage points). Growth rates in the euro area may amount to only 0.7% this year, the forecast was improved by 0.2 percentage points. In developing countries (Russia is also included in the fund), growth rates, on the contrary, in 0.3 p.p.) will accelerate – from 3.9% to 4%. In China, growth is expected to accelerate to 5.2%. In India, GDP growth may slow from 6.8% to 6.1%, but the country’s contribution to global growth will be second only to that of China.
The influence of Chinese and Indian demand in world markets on the IMF forecast for the Russian Federation obviously exists – both countries have become key markets for Russian commodity exports after the G7 countries announced a limited embargo and a price cap on its components from February 2022. The forecast does not disclose how growth in the Russian Federation may become positive, but contains a direct indication that the current level of the price ceiling for Russian oil ($60 per barrel) will not have a significant impact on the volume of its supplies due to their redirection to countries did not support the sanctions. Nevertheless, the fact that it is the dynamics of net exports in Russia’s GDP that is the source of positive growth in the IMF’s calculations remains only an assumption.
The IMF forecast has left Russian analysts arguing about whether to wait for growth in 2023 and which of the forecasters will “flip next”.
More recently, on January 19, Natalya Orlova from Alfa-Bank and Evgeny Nadorshin from PF Capital seriously argued whether the Russian economy would fall by 5% or 10% in 2023. Bloomberg Economics Russia economist Alexander Isakov, in turn, believes that 0.3% growth in 2023 is likely. “Shocks remain in 2022 and retail lending is accelerating and will finance the acceleration in retail demand. So the IMF figures look convincing,” he said. A jump in consumer demand due to changes in the preferences of citizens is not ruled out in the Central Bank.
The risks of the IMF forecast for the Russian Federation are not described in detail, but they are easy to recover – Russian raw material exports will be effectively protected in case of high demand, but with low growth rates of the global economy, the Russian Federation will lose much more in supply volumes than the “linear” logic implies: at an equal price “Sub-sanctioned” and “non-sanctioned” oil, the latter will always be preferred, regardless of the operation of the price cap mechanism. Specific risks for the Russian Federation, which are also able to reduce growth, are diverse – this is not only the possibility of a quick zeroing of the active balance of payments (see “Kommersant” dated January 30) and the weakening of the ruble due to the rapid growth of imports, but, on the contrary, the threat of import restrictions, the growing risks of the labor market, the risks of failures in import substitution, destabilization of corporate structures due to problems of owners, which still have not left the scene. However, the IMF may view them as less relevant precisely in 2023 – some of them may turn out to be medium rather than short-term. Most experts expected a failed (largely due to the emergency, effective, but partly palliative and “freezing” the situation of the actions of the Central Bank and the Ministry of Finance) a strong decline in economic growth in 2022 precisely for these reasons, and not just in anticipation of financial instability. Assumptions of analysts of the Bank of Russia that the stabilization of the RF GDP will take place, among other things, by simplifying the output structure, remain undeniable, although this process clearly turned out to be slow.
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