The Central Bank described the options for the development of the economy depending on external conditions

The Central Bank presented three scenarios for Russia’s economic development in the near future – the baseline, “Accelerated Adaptation” and “Global Crisis”. The regulator reflected its vision in the system document “The main directions of the unified state monetary policy for 2023-2025”. His draft is posted on the website of the Bank of Russia. The base scenario is far more likely than the other two combined, Central Bank Deputy Chairman Alexei Zabotkin said during a press conference on Friday.

The main option does not imply a significant change in the current geopolitical conditions until the end of the forecast horizon. The external restrictions imposed on Russian exports, imports, investment and technological cooperation will largely remain. According to the baseline scenario, Russia’s GDP will decline by 4–6% in 2022, by 1–4% in 2023, and by 1–4% in 2024–2025. – will grow by 1.5–2.5%.

Inflation this year will be 12-15%, in 2023 it will slow down to 5-7%, and in 2024 it will return to 4% and will continue to be close to this level, which the Central Bank considers the target. The average key rate will be in the range of 10.5-10.8% in 2022, 6.5-8.5% in 2023, 6-7% in 2024 and 5-6% in 2025. Price for Urals oil will gradually decrease: from $80 per barrel in 2022 to $70 in 2023, $60 in 2024 and $55 in 2025.

In the baseline scenario, the Bank of Russia proceeds from the assumption that global growth will inevitably slow down during the period of rate hikes by the largest central banks, but a well-adjusted monetary policy will allow the largest economies to avoid a large-scale recession.

“Fast Adjustment” also assumes that a major global recession will not occur. The main impetus in this scenario for the Russian economy comes from a faster recovery of domestic demand. New partnerships and stronger economic ties will lead to a stronger recovery. In this scenario, a slight growth of the Russian economy is possible already by the end of 2023 (forecast from -2% to +1%). In 2024, the GDP will accelerate to 2.5–3.5%, in 2025 its rates will be 2–3%. Annual inflation this year will be 12-15%, next year – 3.5-5.5%, in 2024-2025. will stay close to the 4% target. The key rate in this scenario over the next three years will be significantly lower than in the base one: 5.5–7.5% in 2023 and 5–6% in 2024–2025.

Under the “Global Crisis” scenario, which assumes a significant deterioration in the state of the world economy and increased geopolitical tension, an economic and financial collapse of the economy may begin, comparable in scale to the situation in 2007-2008. For the Russian economy, the realization of the global crisis, along with the deterioration of the geopolitical background, will significantly complicate structural adjustment and adaptation to new conditions, writes the Central Bank. The decline in Russia’s GDP in 2023 will be even stronger than in 2022: 5.5–8.5%. In 2024, the decline will continue – 2-3%, and in 2025 growth within 1% is possible. Inflation will rise to 13–16% in 2023, slow down to 8–9% in 2024, and return to 4% in 2025.

The Bank of Russia will have to significantly raise the rate compared to the baseline and keep it at an elevated level for an extended period to prevent the development of secondary effects of inflationary expectations and return it to the target level, the regulator warns. Urals oil prices in this scenario are expected to be significantly lower than in the base case: $35 per barrel in 2023–2024. and $40 in 2025

The probability of the scenario “Global crisis” can be estimated at 20-25%, “Accelerated adaptation” – 10-15%, says the director of the analytical department of the IC “Region” Valery Vaysberg. The latter is the least likely, since its main prerequisite is the emergence of a strategic alliance with one or more friendly countries with modern technologies (IT, pharmaceuticals, mechanical engineering), ready to give access to their intellectual property and integrate existing Russian enterprises into their technological chains, he noted. The baseline scenario is the most likely: the Russian economy has already shown a very high adaptability, says Valery Yemelyanov, an expert on the stock market at BCS World of Investments. The gap with Western markets did not become a catastrophe either in terms of GDP, or in terms of inflation, or for the federal budget, he pointed out. In his opinion, the second most likely scenario is “Accelerated Adaptation”. This is similar to what we saw in the period 2015-2019, the expert explained.

For the accelerated adaptation of the Russian economy, stabilization of the economic and foreign policy situation is necessary, without which it is difficult to count on the implementation of a full-fledged development program and the complex effect of the support measures taken, believes Ilya Ilyin, head of the Banking and Financial Markets Analysis Department at PSB.

There could be a series of overlapping but shallow recessions in various Western economies and the continued slow growth of China’s economy, but the fall in demand and prices for Russian exports will not be as significant as the Global Crisis scenario suggests, Weisberg said. The probability of a global crisis is estimated at 10-20%, Ilyin added. Russia is quite well prepared, since it provides itself with raw materials and food resources, and dependence on international financial markets is now at a minimum level, the expert pointed out. At the same time, raw material prices, traditionally a weak spot in terms of budget revenues, as 2008 and subsequent crises showed, did not stay at their lows for a significant time, the expert noted. At the same time, falling budget revenues due to a drawdown in oil prices are historically compensated by the weak exchange rate of the ruble, he concluded.

In the baseline scenario, we expect that in 2023 there will be a combination of all three scenarios that the Central Bank described, says Mikhail Vasilyev, chief analyst at Sovcombank. Energy and food crises, record global inflation and falling incomes of the population, the fastest tightening of monetary policy by central banks in 20 years, geopolitical contradictions, new waves of the pandemic are leading to a rapid deterioration in economic conditions in the world, he states. The global recession, according to his forecasts, will come in 2023. At the same time, Russia will cope with a possible global crisis, the expert believes. The decline in GDP and inflation next year will be lower than in 2022, fiscal policy will remain stimulating and support the economy, Vasilyev expects.

As we have seen more than once, Russia withstood all crises, but the question is at what cost, noted Anton Tabakh, chief economist at the Expert RA agency. So far, world markets, and especially labor markets, are talking about a strong slowdown in the global economy, and not about a crisis on the scale of 2008-2009, he notes. The economy will survive such a crisis, although we will see a surge in inflation, the expert noted.

A global crisis comparable to the level of 2007-2009 is unlikely to happen, Yemelyanov believes. Such events occur once in a century, they are caused by an unpredictable system failure, and not just a surge in inflation, which the market has been preparing for in advance, he pointed out. But if something similar were to happen again, then today’s Russia would have experienced it more difficult than Russia in the 2000s, since far from all sales markets are available to us now, the expert concluded.