The Ministry of Economics improved the forecast for the ruble exchange rate, GDP and inflation in 2022

The Ministry of Economics significantly improved estimates of a significant part of macroeconomic indicators in 2022 compared to the forecast published on May 18. The agency expects a decline in GDP this year by 4.2%, follows from a fragment of the socio-economic development forecast for 2022 and 2023–2025. (Vedomosti has the data, their authenticity was confirmed by a federal official). In the May version, the Ministry of Economy estimated the decline in the economy at 7.8%.

Inflation at the end of the year will be 13.4%, while previously expected 17.5%. The developers of the forecast assume a much less sharp drop in real disposable incomes of the population: if a decline of 6.8% was predicted in May, now a decline of 2.8% is expected. The average annual unemployment rate in 2022 will remain at the level of 2021 – 4.8%. In the previous version, the indicator was expected to rise to 6.7%.

It is characteristic that the Ministry of Economics expects a stronger ruble, and throughout the entire forecast period from 2022 to 2025. In the May forecast, the average annual dollar exchange rate was expected at the level of 76.7 rubles / $ in 2022, then it should show a slight weakening to RUB 77/$ and RUB 78.7/$ in 2023 and 2024 and reach an average annual value of 81 rubles / $ in 2025. According to new data, in 2022 the average annual exchange rate will be at the level of 68.1 rubles / $, in 2023-2025. its value will be 69.2 rubles/$, 72.9 rubles/$ and 74.8 rubles/$.

The forecast for the dynamics of foreign trade has also been improved. Exports for the year are expected to be $585.3 billion against $482.4 billion in May, imports – $285.7 billion against $252 billion.

With the improvement of the forecast for economic growth in 2022, estimates of indicators for future years worsened. In 2023, the ministry expects a deeper decline in GDP (2.7% yoy vs. 0.7% earlier). Inflation, household incomes will also recover more slowly than previously expected.

The draft forecast has already been agreed with the Ministry of Finance and the Ministry of Energy and submitted to the Budget Commission, a spokesman for the Ministry of Economics said.

One of the most important factors determining the dynamics in the draft forecast is the trend towards recovery in consumer demand, said a federal official familiar with the discussion of the document. In addition, according to him, in their calculations, the developers of the forecast proceed from the fact that in the foreseeable future the Central Bank will not resort to a sharp tightening of the monetary policy and will allow the economy to maintain momentum.

With extremely high investment activity in the first quarter of 2022, its decline is already observed, the federal official added. On the one hand, there are many accelerated and already completed projects, on the other hand, for many new initiatives, the need to adapt the model remains relevant, for some the economic feasibility as a whole remains unclear, the official argues. In this regard, he believes, the investment decline will be shifted to the beginning of next year and it will be more significant than the consumer one.

The number of jobs threatened with cuts has increased, the federal official acknowledged. This could become a problem as labor market support cannot continue indefinitely, the source warns. Unlike the situation with the COVID-19 pandemic, in the current conditions, unemployment will be structural and territorial in nature: in connection with the restructuring of the economy, there may be a situation of a combination of labor shortages in some industries and regions and unemployment in others, he explained.

In the economy, despite the relative stabilization, an extremely high level of uncertainty remains, said Boris Kopeikin, First Vice-President of the CSR. It is likely that the economy will begin to recover only in the second half of 2023, but much will depend on the ability and speed of replacing investment imports, the supply of components, as well as business and consumer sentiment, the expert believes.

In recent months, the dynamics has been supported by a stable situation in oil production, Kopeikin admitted. Considering that the economy shrank by only 0.5% in six months of 2022, the presented version of the GDP dynamics forecast looks completely realistic, the economist concluded.

The recession was mitigated by an increase in Indian oil purchases and support for investment and consumer demand by the government, which implemented an unprecedented wide range of support measures related to social payments, soft loans, etc., added Valery Mironov, Deputy Director of the Development Center Institute of the National Research University Higher School of Economics. Also a positive moment was the reduction of the key rate by the Bank of Russia, the expert agreed.

The new estimates of the Ministry of Economics are too optimistic, says Alexander Isakov, an economist and author of the Solid Numbers Telegram channel. The forecast assumes an acceleration of GDP to almost 4% in 2024, which, in fact, provides for a scenario of a post-COVID rapid recovery, the expert added. The scenario of the transformational recession that Russia is going through will be different: the decline in the economy will be followed by its gradual, rather than sharp growth, which will not exceed 1–1.5% per year, Isakov suggests. On June 16, Minister of Economic Development Maxim Reshetnikov, in his speech at the SPIEF session “The Russian Economy: Modern Challenges and Points of Support,” stated that the Russian economy needs to “buy time” for structural adjustment.

Expectations for inflation are seen as very doubtful, in which for 2023 and subsequent years it is supposed to practically freeze the current abnormally low inflationary background, Isakov believes. The current situation has developed on the basis of unstable factors: a stop in retail lending, appreciation of the exchange rate and an unusually early, unseasonable, fall in prices for fruits and vegetables. These factors will not be there by October, not to mention next year, the expert is sure. The Bank of Russia assumes in the base scenario that prices will rise to 7.5% next year, which is more plausible, Isakov said.

An extremely significant factor for the positive dynamics was the easing of the Central Bank’s policy, as well as the alignment of consumer demand with a shift in emphasis to domestically produced goods, noted Associate Professor of the Department of Economic Theory of the Russian University of Economics. G. V. Plekhanova Ekaterina Novikova. Moreover, there is a gradual reorientation of the country towards cooperation with Asian markets, which in the near future will affect the further recovery and even increase in exports, the expert believes.

In this regard, we should expect the ruble to strengthen in the medium and long term. In addition, the Ministry of Economy, apparently, includes in the forecast a more active transition to trading in national currencies – without the use of the dollar or the euro, which also has a positive effect on the exchange rate, Novikova suggests.

The forecasts of the Ministry of Economics are similar to the baseline forecast of the Bank of Russia, said Viktor Tunev, chief analyst at Ingosstrakh Investments. The dynamics of GDP, inflation and imports are within the estimated range of the Central Bank, but exports and imports are significantly higher in the future, the expert notes. Most likely, the Ministry of Economy is setting higher prices and volumes of oil and gas exports (these figures are not included in the fragment of the draft forecast), Tunev believes. Most likely, the ministry expects Urals prices to be around $70 per barrel in 2023, with a decrease in prices and volumes for other export items, primarily for natural gas, the expert suggests.

The dynamics of oil in recent weeks is indicative: the average price of Urals, according to the calculations of the Ministry of Finance, for the month until August 14 was $83 per barrel, i.e., the discount to Brent fell from $26 to $18 in half a month, Tunev drew attention. This means that there is a demand for Russian oil, and the decline in the price of Brent does not yet affect the economy’s income, the expert emphasized.