Economic forecast for 2024: GDP growth will be minimal, inflation will not decrease

GDP growth by the end of 2023 will be about 3.5%. This is a relatively high figure, especially considering the sanctions restrictions in the Russian economy. How good this indicator is can be understood by comparing it with the official government forecast with which the Russian economy entered 2023. It was predicted that the country’s GDP would decrease by 0.8% in the outgoing year. And not only did it not decrease, but even increased. And significantly. However, plenty has already been said about this positive result from high stands. Equally, and even more important, is what awaits the economy in the future.

The final figure for 2023 must also be assessed taking into account the prospects for the coming years. In this case, it will be possible to judge the stability and longevity of the achieved level.

However, the times today are such that it is very difficult to predict anything in the economy. The uncertainty of the economic situation is extremely high, sanctions pressure on the Russian financial system and business remains. And what can be said about the economy at such a time? Well, some estimates can still be made.

To make the forecast reliable, it is necessary to take into account, firstly, what supported the economy in the past year. Secondly, will this support be valid in 2024 and subsequent years. Thirdly, try to predict whether the economy can, due to any new factors, maintain the dynamics of its development.

Let’s start answering the questions posed in order. The main thing that supported the economy in the past year was the so-called budget impulse (or stimulus). Finance Minister Anton Siluanov spoke specifically about “impulse”. What it is? Simply put, huge budget money was poured into the economy through government orders, additional financing and various types of payments. Such government injections are an almost automatic increase in GDP. In world practice, this often happens when budget injections heat up the economy. In terms of scientific justification, such a policy has a solid foundation – Keynesianism (named after the outstanding economist J.M. Keynes).

The same thing has happened here since the end of 2022. It is difficult, one might even say impossible, to object to this explanation of the economic successes of the past year. The Bank of Russia, by the way, does not object and recognizes the role of fiscal stimulus in economic recovery.

In 2024, the fiscal stimulus will continue to operate. Once again, we expect a significant increase in government spending. Federal budget expenditures should increase in 2024 by 15.8%, to 36.7 trillion rubles. This is provided for by the recently adopted law on the federal budget for 2024 and for the planning period of 2025 and 2026. But further… Then, judging by the same adopted three-year budget, the budgetary impulse should practically cease to operate. Federal budget expenditures in 2025 not only will not increase, they will decrease from the already mentioned 36.7 trillion to 34.4 trillion rubles, that is, by more than 6%.

So, alas, for the sake of objectivity we conclude: the budget impulse will only be in effect in 2024. Then, without losing too much optimism, let’s assume that at least in 2024 the same 3.5% GDP growth can be achieved. However, for some reason, the Bank of Russia gives a much more modest forecast: 0.5–1.5% – this is its expectations for economic growth in 2024.

Do you know why the Bank of Russia is so modest? The specialists working there—certainly literate people—understand perfectly well that the budget stimulus may still continue into 2024, but the credit stimulus—primarily bank loans—will weaken. Because with a key rate of 16%, it simply cannot help but lose its power. Plus, let’s take into account that the Bank of Russia promises to pursue a tough monetary policy for a long time to come. It won’t take long, we’ll see. However, it is clear that in 2024 (and possibly with the transition to 2025) the key rate will remain high. This depresses the economy and makes it almost impossible to achieve the same rates of economic growth as in 2023. This means that the slowdown will begin in 2024. But the Bank of Russia will fight inflation irreconcilably, choosing the lesser of two evils.

Maybe something else can boost the economy? Let’s say, the rise in world oil prices? However, the share of oil and gas revenues in our country has already declined sharply. The economy is changing structurally. Plus, let’s take into account that there are no visible reasons for an increase in world oil prices. The restructuring of the logistics of delivering Russian oil along new export routes has already largely occurred. The global economy is slowing down. The main thing is that China is clearly slowing down, that’s what’s important.

Will we again rely on business, on its market instincts, its ability to withstand difficulties? This is not an unreasonable hope. The problem is that a powerful budget impulse with its government orders is at the same time a decrease in the market nature of our economy. Therefore, one can still rely on this factor, but one should not overestimate it.

The decline in the marketization of the economy is also evidenced by what has happened to the prices of certain goods recently. The situation with eggs, about which even the president was forced to answer questions on Direct Line, is a very clear example confirming that there is a problem. The conclusion suggests itself: in 2024, economic growth may still be recorded, but it will be minimal.

Now about the prices. As promised towards the end of 2023, according to its results, official annual inflation will be about 7.5%. This, I note, is 2 percentage points more than originally predicted. Thus, inflation was not contained. As a matter of fact, that is why the Bank of Russia decided to sharply increase the key rate, trying to curb price growth.

In 2024, the government hopes for inflation of 4.5%. And the Bank of Russia even expects 4% by the end of the year. Let’s try to evaluate whether this is real. It is important that we enter 2024 with accelerating inflation. And inflation is inertial. It is unlikely that it would accelerate until December 31, 2023, and begin to decline from January 1, 2024. And the inflation target must be achieved.

In addition, let’s take into account the currency factor: the ruble, of course, tried to strengthen some time ago, but it didn’t work out very well. So its exchange rate will remain low.

The fiscal impulse itself, which accelerates budget demand, also accelerates inflation, because supply in this race is inferior to demand.

Another important point. In 2024, the inflation rate will be greatly influenced by such a pro-inflationary factor as the indexation of utility tariffs. The total payment of citizens for utilities, as forecast by the Ministry of Economic Development, should increase from July 1, 2024 by 9.8%. But this is the national average. In regions, indexation will differ up or down. Let me remind you that in 2023 there was no indexation of utility tariffs at all (the last one happened on December 1, 2022). And yet, prices have increased significantly in 2023. In 2024, according to the government’s forecast plans, tariffs should be increased, and inflation should simultaneously slow down sharply. If this is possible, then only if something acts as a sharp brake on inflation, and this “something” is not yet visible.

Hence the forecast for 2024: prices will be able to be maintained for now, but it is unlikely that the target of 4% will be achieved. If we maintain single-digit inflation, this will already be a great success.

This is how 2024 is seen in economic terms. Much greater concern arises for 2025 and beyond. But, apparently, it’s better to talk about this in a year. Because today is a time of very high economic uncertainty. Here, for the coming months, not everything is clear and understandable. But it is still necessary to try to comprehend what is happening and look into the future. As the great Vissarion Belinsky wrote, “we question and interrogate the past so that it explains to us our present and hints about our future.”