The Bank of Russia presented three frightening scenarios for economic development until 2025

Three scenarios for the development of the Russian economy for the next year and 2025 – “basic”, “accelerated adaptation” and “global crisis” – were presented by the Bank of Russia. They are published on the regulator’s website. It is curious that there is virtually no positive outlook on the future this time. The Central Bank considers the “baseline” scenario to be the most likely. The other two options—“accelerated adaptation” and “global crisis”—have negative features of varying degrees of severity. Experts interviewed by MK argued about which scenario for the development of the Russian economy is most likely and why.

In the most realistic “baseline” scenario, the Central Bank assumes the continuation of structural restructuring of the Russian economy, maintaining sanctions, achieving inflation of 5-7% by the end of 2023 and reducing it in 2024 to the regulator’s target of 4%. The average key rate, in turn, will be at levels of 6.5-8.5% in 2023 and 6-7% next year, and by the end of 2025 it will drop to 5-6%. Geopolitical tensions will continue for the next three years. At the same time, key central banks in developed countries will continue to raise interest rates, and the global economy will slow down its development, although it will not fall into recession. Against this background, Russia’s GDP growth rate will not exceed 1.5-2% in the coming years.

If the accelerated adaptation scenario is implemented, there will be a rapid establishment of trade relations between domestic companies and foreign partners, a more rapid restoration of imports due to the building of efficient supply chains, as well as an increase in domestic demand. In this case, inflation will slow down to 3.5-5.5% this year, and in 2024-2025 it will be able to return to the target level of 4%. Russia’s GDP growth rate in 2024 will be between 2.5-3.5%, in 2025 – about 2-3%. The average key rate, in turn, will be at levels of 5.5-7.5% at the end of the year, and in the next few years it will drop to 5-6%.

The most negative of the future options presented by the Bank of Russia is the “global crisis” scenario. It involves developed countries entering a recession, raising rates by the world’s leading central banks and making it more difficult to adapt the domestic economy to harsh external conditions. In this case, inflation will reach 13-16% by the end of 2023. Next year it will drop to 8-9%, and in 2025 it will return to the target 4%. In addition, in this case, Russia’s GDP will decrease by 5-8% by the end of 2023, by the end of 2024 it will fall by another 1-2%, and in 2025 it will grow by a maximum of 1%. The average key rate, in turn, will be at levels of 11.5-13.5% at the end of the current year, 12-13% in 2024 and 6-7% in 2025.

As Arthur Meinhard, head of the analytical department for global markets at IC Fontvielle, noted, the Bank of Russia had previously published economic scenarios for future development, but one main scenario for the development of events was envisaged, one more positive, and the other negative. But this year the situation is somewhat different. There is a basic scenario and essentially two negative options for the development of events, differing in the “severity” of possible consequences. This is an interesting feature for 2023. When drawing up scenarios, the regulator takes into account both the situation in the Russian economy and possible problems in other countries that could affect our economy. Hence there are two negative scenarios, the threats of which mainly come from outside.

So far, the situation in the global economy can hardly be called healthy. Judging by October data from the Eurozone, the region’s two largest economies – French and German – are under severe pressure from high rates. This is felt both in manufacturing and in the service sector. It is too early to talk about stabilization of the inflation situation. The US Federal Reserve is also in a difficult situation, when raising interest rates is already becoming dangerous for the economy, and it is too early to lower them; they have not yet had the desired effect.

Most experts are inclined to believe that although the basic future scenario presented by the Central Bank is the most likely, it will only come true with “reservations” and not completely. “When the key rate is 15%, it seems strange to expect its average to be 6%,” Artem Tuzov, director of the corporate finance department at IVA Partners, continues the conversation. At the same time, the expert notes that the “baseline” scenario is so called precisely because it is the most likely. The Central Bank of the Russian Federation is obliged to consider others, since the world economy is now in a difficult situation due to Israel’s conflict with Arab countries. At the same time, if we talk about the domestic financial market, it should be emphasized that the Central Bank of the Russian Federation has made great efforts to curb inflation. This should have an effect, so that the inflation forecast of 5-7% is quite achievable, the analyst emphasized.

However, there was not a single expert who saw reasons for implementing the more positive of the presented scenarios. But more analysts than before agreed with the negative. “The scenario of a “global crisis” seems to be the most likely, because, according to public sources, some countries of the collective West have already entered a state of recession,” says the owner of the TOBU Accounting House, Ekaterina Zelenskaya. “The size of the financial holes cannot be hidden by any manipulation. Such prominent publications as The Economist magazine are already writing about this.”

According to market experts, whom the Central Bank surveys every month, the key rate in 2024 will be 12.6%. “At the same time, just a month ago, experts saw it at the level of 10% per annum, that is, the situation is changing very quickly, which affects the estimates,” recalls Meinhard. “I think that the key rate of the Bank of Russia next year will remain mostly double-digit, but I’m more likely inclined to the ranges given by the regulator in the scenario of a “global crisis” with all the ensuing consequences.”

Despite different assessments of the listed scenarios, experts are confident that nothing critical threatens the Russians’ wallet. As Tuzov points out, the basic scenario from the Central Bank of the Russian Federation assumes an increase in the well-being of citizens. The reduction in deposit rates will be synchronous with the reduction in inflation, and the stabilization of the economy will add confidence to citizens in the future.

However, if the regulator’s negative forecast comes true, then there will be reasons for optimism. Thus, high rates will allow you to open deposits at good interest rates. “Long-term deposits are now preferable to most other investment instruments,” notes the head of the laboratory for “Research of the Monetary System and Analysis of Financial Markets” at the Russian Economic University. G.V. Plekhanov Denis Domashchenko. But it’s better not to get involved with loans: servicing them will be difficult, especially for debt-ridden citizens, the scientist warned.