The smaller the ruble, the more money

Macroeconomic data published by the Bank of Russia survey for September demonstrate how, in fact, in two months of fairly rapid weakening of the ruble, the forecasts of independent experts about the future of macroeconomic indicators until 2026 have changed. The weakening of the ruble, according to the Central Bank, is quite accidental; in analysts’ calculations, it was accompanied by an improvement in short-term expectations for GDP in 2023, the level of real wages and unemployment – with an increase in inflation expectations by 0.5%.

Let us recall that in the July survey (September data; the previous survey of the 30 largest analytical groups of the Russian Federation was conducted in July), analysts expected the average annual exchange rate of the ruble to the US dollar at 81.8 rubles/$ with a weakening in 2024-2025 to the level of 85 rubles/$ , after two months of waiting, the average annual rate is 85.5 rubles/$ in 2023, about 90 rubles/$ in 2024–2025 and 92 rubles/$ in 2026. De facto, this is the only new major “input” in the calculations, in addition to some acceleration of inflation, traces of which analysts saw in June-July 2023. The Central Bank explained the depreciation of the ruble mainly by the weakening of the balance of payments; however, data on foreign trade, taking into account the strong complexity of payments between jurisdictions and the secrecy of some customs statistics since the end of 2022, did not allow a sufficiently accurate assessment of this impact and its connection with financial markets. Experts also practically did not revise their estimates of the trade balance surplus.

The change in analysts’ estimates of future inflation is small: in their opinion, in comparison with previous estimates, the events of the summer of 2023 add 0.5 percentage points to the inflation estimates for this year (p.p., new estimate 6.3% December 2023 to December 2022, but the estimate of average annual inflation has remained virtually unchanged), in 2024 the difference is less than 0–0.2 percentage points, that is, almost the entire pro-inflationary additional effect will be “worked out” by the economy this year.

Experts believe that the average annual key rate of the Bank of Russia in 2024 will be 10% (previously it was assumed 7.7%), their estimates of the neutral key rate for the Russian Federation have remained virtually unchanged, although the Central Bank now estimates it to be 0.5 percentage points higher than before ratings.

The assumption that the ruble’s weakness is caused by future hidden problems of the federal budget is not shared by analysts: in two months they lowered their deficit expectations for both 2023 and 2024. Estimates of the dynamics of imports and exports remained essentially unchanged, while forecasts of actual prices for Russian export oil increased. Experts also believe in higher dynamics of Russian GDP in 2023 – 2.2% against previous forecasts of 1.5%. Another forecast follows from this: the recovery of GDP levels to 2021 levels will occur this year, not next year. Finally, analysts saw in this summer’s trends a lower-than-expected average annual unemployment rate (3.2%), and their data also suggests faster growth not only in nominal and real wages in the Russian economy in 2023.

Updated virtually simultaneously with the Central Bank consensus, the consensus macro forecast of FocusEconomics analysts, based mainly on data from Western institutions and investment banks, although remains noticeably more conservative, records more positive changes in the main indicators over the past month.

The consensus forecast for annual GDP growth compared to July was increased immediately by 0.8 percentage points, to 1%, for 2023 and by 0.1 percentage points for 2024, to 1.2%.

Growth estimates for industrial production were also noticeably increased – by 0.8 percentage points (up to 1.6%) for 2023 and by 0.3 percentage points (up to 1.4%) for 2024 and imports – up to $311 billion ($17 billion in 2023 and $9 billion in 2024) in the current and future years. Against the backdrop of not so significant changes in export estimates, the foreign trade surplus in 2023 and 2024 could amount to $138 billion against $151 billion and $144 billion according to previous estimates, respectively, and the current account surplus of the balance of payments – 3.1% of GDP (previous estimate – 4. 3% of GDP) this year and 2.9% of GDP (was 3.4% of GDP) next year.

At the same time, the FocusEconomics consensus sees the key rate in 2024 at 9.57%, although the indicator will remain above 10% until the second quarter of 2024 and drop to 9.27% ​​in the fourth quarter of 2024. At the same time, the average annual dollar exchange rate in 2023 will be at the level of 84.27 rubles/$ and will increase to 91.66 rubles/$, and the euro – 100.5 rubles/euro and 106.42 rubles/euro with an average annual inflation of 5.7% (6% at the end of the year) and 5.2% (4.4%).

In any case, the nature of changes in the assessments and expectations of both Russian and foreign analysts does not show that the summer events in the economy, which could be regarded as the beginning of significant problems in macrostability, actually are such.

The situation is paradoxical: de facto experts are improving short-term forecasts, stating that the weakening of the national currency is occurring against the background of increasing export prices and the expected stability of federal budget revenues (experts both in the Russian Federation and abroad practically do not use estimates of the consolidated budget). In essence, this is a confirmation of the Central Bank’s main summer thesis about the ruble exchange rate: its weakening is caused solely by some weakening of the trade balance indicators, that is, essentially, a direct consequence of the decline in oil export prices in the spring – early summer of 2023, with a two-three month lag, translated into a currency shortage in the domestic market of the Russian Federation.

On September 7, the Central Bank published in the “Review of Financial Market Risks” (.pdf) detailed data on the state of the foreign exchange market in July-August, which well confirms the opinion of analysts that the current ruble exchange rate above 95 rubles/$ is underestimated (all analysts’ estimates for the ruble are higher than the current rate, including medium-term ones). From the Central Bank data it follows that the estimated “return of foreign currency earnings” in the Russian Federation in recent months amounted to 83% (nominally – 67% due to the large share of rubles in export earnings – it continues to grow, while the share of rubles in payments for imports is stable, which may explain only part of the effect), and this makes proposals for tightening exchange controls almost meaningless, other than their “signaling” effect and increasing the inefficiency of import payment. In fact, Bank of Russia analysts argue that the August problems with the ruble are a consequence of a completely accidental decline in dollar sales in the first half of August. However, expectations of further strengthening of the ruble should be accompanied by concerns: if almost insignificant events on the market in August are accompanied by such large-scale exchange rate movements, currency risks in the Russian economy in the coming months are higher than commonly thought.

Dmitry Butrin, Artem Chugunov