Moody’s expects Russian economy to contract by 3%

The fall in Russia’s GDP in 2023 will be 3%, according to the medium-term forecast of the rating agency Moody’s, transmits RBC with reference to the published forecast.

The agency’s analysts noted that their initial forecast of a 7% fall in Russia’s GDP in 2022 did not come true. At the same time, sanctions against Russian exports and the severing of economic ties with the West will lead to a “deepening recession” in the Russian Federation, a weakening of the growth potential of the Russian economy and a weakening of the ruble. At the same time, in 2024, GDP may already return to growth, having increased by 1%.

The reduction in oil production, the agency expects, may exceed the previously announced 500,000 b/d, while maintaining the price ceiling for oil and petroleum products, which will lead to an even greater decline in GDP. Analysts predict the federal budget deficit at 3.5% of GDP, while the Russian authorities’ forecast of 2% of GDP is based on “optimistic macroeconomic assumptions.”

The economic situation may force the country’s authorities to resort to “unorthodox” [финансовой] politics, analysts say. In particular, we are talking about “monetary financing” of the budget, they believe. Moody’s predicts that most of the budget deficit will be offset by the National Welfare Fund (NWF). With Urals prices at $50 per barrel. the liquid part of the NWF will be exhausted by 2027, analysts admit. In the longer term, the Russian budget will increasingly depend on the banking sector, analysts said.

Interviewed RBC experts point out, in turn, that so far the state of affairs in the economy does not require any “unorthodox” measures, and the government of the Russian Federation has behaved and is behaving rather “orthodoxly”. According to Anton Tabakh, chief economist at the Expert RA rating agency, the authorities continue to borrow money, taking advantage of the low level of public debt, spend the NWF conservatively and support budget revenues, in particular, adjusting the levels of the mineral extraction tax. At the same time, Loko-Invest Investment Director Dmitry Polevoy drew attention to the fact that in his address to the Federal Assembly, President Vladimir Putin stressed his commitment to standard market measures.

According to the current forecast of the Ministry of Economy, in 2023 the Russian economy will decrease by 0.8%, and in 2024 it will grow by 2.6%. Inflation at the end of this year is expected at 5.5%, and the government expects it to return to the target of 4% in 2024. Investments in fixed assets will decrease by 1% in 2023, real disposable income will increase by 1.6%, comes from the forecast.

On February 10, the Bank of Russia updated its medium-term macro forecast, improving estimates for the economy this year. According to the regulator, the dynamics of GDP will be in the range from minus 1% to plus 1% (in the previous version of the forecast, the Central Bank expected a decline of 1-4%). At the same time, the assessment for the next year has been downgraded to 0.5–2.5% compared to 1.5–2.5%.

At the same time, the International Monetary Fund (IMF) significantly improved forecast for Russia’s GDP in 2023 – instead of a decline of 2.3%, it is now expected to grow by 0.3%.

Russian GDP in 2022 in absolute terms made up RUB 151.5 trillion in current prices follows from Rosstat data. The economic recession amounted to 2.1%, which is less than the forecast for the socio-economic development of Russia (minus 2.9%) suggested.