Harsh, profitable, slow – Newspaper Kommersant No. 223 (7424) dated 12/01/2022

The ACRA rating agency has published its own forecast of Russia’s macro indicators for 2023–2024. The main differences from official forecasts are that industrial production is expected to continue to decline, a cheaper ruble with slightly higher inflation, very low unemployment and higher lending rates.

ACRA’s forecast is the first publication of a non-state medium-term forecast, the number of which in general this year will apparently be significantly less than in the past, in addition, ACRA analysts are traditionally somewhat tougher and more free in their assumptions compared to analysts from the Bank of Russia and the Ministry of Economy: for the reputation of a rating agency, any “underestimation” of risks is more problematic than for state structures, although in the conditions of the departure of the main international rating agencies from the Russian market, this factor is already less important.

When modeling macro indicators for 2022–2024, ACRA proceeds from a higher price of oil as a basic energy carrier and export commodity of the Russian Federation than the budget projections — $82 per barrel in 2022, $77 in 2023, and $75 in 2024, which corresponds to the assumption of a very low global GDP growth in the next two years: 1.1% in 2023 and 2.5% in 2024, with an almost catastrophic dynamics of China’s GDP in 2023 – 2.1% per annum (with a “rebound” of only 4.4 % in 2024) — but without the EU and US economies entering a long-term recession.

This is the main thesis of ACRA’s forecast, which ultimately distinguishes it from similar forecasts by the Bank of Russia and the Ministry of Economy: the external market will not be a growth driver for the Russian economy over the forecast horizon, and the global inflationary background is therefore expected to be higher.

In addition, the idea voiced by the Central Bank of assuming higher inflation than the Central Bank’s target in 2023-2024 is assumed to be implemented in the forecast — at the end of 2022, inflation is expected at 12.5%, at the end of 2023 — 6.9% per annum , 2024 will end, according to ACRA, with inflation at 5% per annum.

Based on these assumptions, ACRA expects that GDP in 2022 will decrease by 4% (significantly lower than the expectations of government agencies of the Russian Federation, but not the Bank of Russia), in 2023 the decline will slow down to 2.8%, and the recovery in 2024 will be weak – 1, 3% year on year. They tend to share the thesis about a relatively low decline in investment in ACRA, estimating it, however, also tougher than government forecasts – at 2% in 2022 and 1.9% in 2023. A decline in annual industrial production is considered likely at the level of 3.8% in 2022 and 2% in 2023 by 2021: this is a very pessimistic estimate. In general, ACRA, commenting on these forecasts, assumes that the economic recovery will occur through the creation of new industries or the modernization/renewal of fixed assets, but not as a result of a change in the workload balance of existing ones – which takes longer and casts doubt on the rapid “restructuring” of the within one or two years. It should be noted that the prerequisites for a “short” (two-year) forecast by ACRA do not rule out low growth in GDP and industrial production after 2025.

Another ACRA calculation assumption is an increase in the budget deficit of the Russian Federation from 1.5% in 2022 to 2.8% in 2023 and 2% in 2024: the agency’s analysts call it “moderately conservative.”

ACRA expects the government debt yield to be around 8% per annum in the next two years. The agency also assumes somewhat more than the Central Bank and the Ministry of Economy, the weakening of the ruble against the dollar and the euro and higher rates on loans in the economy. Finally, ACRA draws attention to the expected reduction in the labor force in the Russian Federation, which is made up of demographic trends (minus 0.8-1.1% in 2024 by 2021) and a combination of near-war factors (increase in mortality and injuries, reduction in civilian employment, emigration, in total minus 0.2–1%). In the conservative scenario, this gives a reduction in the labor force by 2.1%, in the optimistic one (including due to the influx of migration, plus 1.2%) – a minimal increase (0.2%). For those who remain alive and well at work and in Russia, what is happening is expected to result in an increase in real wages with ultra-low unemployment – 3.8% in 2023 and 3.7% in 2024. However, according to the ACRA forecast, real disposable income in the Russian Federation will grow only in 2024 by 1%.

Dmitry Butrin