There will be something to seize anxiety – Newspaper Kommersant No. 66 (7511) of 04/17/2023
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Considered as positive results for the first quarter of 2023 for the Russian economy, the Ministry of Economy has improved its macro forecast for 2024-2026. Since last week, a new version of the baseline scenario conditions for economic development, assuming GDP growth of 1.2% in 2023 and 2% in 2024, has already been used as a benchmark for initial budget calculations for 2024-2026. The main assumption of the economic authorities is that in the second quarter of 2023, the change in the consumer model of households allowed by the Bank of Russia is already underway, and strong growth in domestic demand will be supported by a tangible increase in income. The Ministry of Economy does not make an optimistic version of the forecast, meanwhile, it is also considered possible.
Last week, the key data of the new macroeconomic forecast of the Ministry of Economy at the start of the budget process for the next three-year budget was published. Prime Minister Mikhail Mishustin, Economics Minister Maxim Reshetnikov and Finance Minister Anton Siluanov discussed the open figures of the base scenario at a joint meeting of the Ministry of Finance and the Ministry of Economy on Friday, the scenario developed by the Ministry of Economy was unofficially commented on by representatives of government departments and the presidential administration. According to Kommersant, the document, including the parameters of the “stress” scenario (whose data is not published, an “optimistic” version of the scenario conditions has not been developed), is already being used by government departments as part of the first stages of the budget process.
The key changes compared to last year’s versions are caused by the revision by Rosstat of part of last year’s data, including quarterly GDP dynamics, data for the first quarter and early April 2023 – the latter are viewed as very positive, primarily data on realized domestic demand and trade. In addition, an obvious prerequisite for improving the macro forecast indicators are (not published with the details necessary for analysis) the data of the Federal Customs Service and the Central Bank on the volumes, structure and nomenclature of Russian exports.
Publicly available external data on the country’s oil and gas exports (see p. 2) give reason to believe that the positive forecast is not a “playing position” of the authorities, but real assumptions. Moreover, the assumptions are rather moderate: according to Kommersant, one of the prerequisites for the forecast of the Ministry of Economy is a gradual, small, but increase in oil production in the Russian Federation with a reduction in oil and gas exports by 6.7% in 2023 with a further increase of 2.9% per year in real terms. in terms of outpacing (by 4.1% on average) growth of non-oil and gas exports. The price of Brent included in the forecast is declining from $80.7 per barrel in 2023 (the price of Urals is not directly predicted in the document), $75.7 in 2024, $71.9 in 2025 and $70.6 in 2026. This is an assumption about a decrease in average prices from the price peak, which for both world oil transactions and for Russian exports should be reached in the second half of 2023. With a larger increase in oil prices, the “baseline” scenario will lag behind the real picture, which can be expected to be even better. Thus, Kommersant’s interlocutors do not completely exclude, but consider it quite likely that a transition to replenishing the National Wealth Fund (NWF) in the summer of 2023 and compensating for losses in export earnings at the beginning of the year at the end of the whole year is quite likely. In this case, the Ministry of Economy’s summer macro forecast will be even better.
Now he assumes GDP growth in 2023 at 1.2%, 2% in 2024, 2.6% in 2025 and 2.8% in 2026. That is, the assumption of a “ceiling” of GDP growth of 1.5-2% at the time of the structural restructuring of the economy in the economic department is no longer supported, or growth is planned to be slightly higher than potential. Inflation, according to forecast calculations, will be slightly lower than previously planned: 5.3% in December 2023 (with a peak of decline in April to 3%) with a further increase to 5.5% in March 2024 and a decrease to 4% at the end 2024. Exports from the Russian Federation are planned to grow monotonously from $465.9 billion this year to $505.1 billion in 2026, imports – increasing from plans of $313.8 billion this year to $362.7 billion in 2026: the current account balance, it is expected that it will remain active in the range of $65-85 billion over the entire forecast horizon. Investments in 2023, despite a rather high base in 2022, will grow by 0.5%, then increasing by 3.2-4.5% per year , largely on investments in transport and logistics.
The most surprising element of the forecast is the expectation of quite stellar retail dynamics in 2023 (growth by 5.3% yoy with a further growth of 3.5%), slightly lower growth in services (3.5% in 2023 and 2.5% % further) with a correlating growth in disposable money income of the population of the Russian Federation (3.4% in 2023, 2.8% each in 2024–2025, 5% in 2026), determined primarily the growth of the payroll. Actually, this is the consequence of the expansion of the scale of budgetary redistribution, which was implemented by the changes in the “budget rules” in 2022, expected by the authorities. An increase in the “cut-off price” in the NWF to $60 per barrel, according to this logic, will inevitably, at least at this stage, increase household incomes, payroll and, as a result, domestic demand.
In essence, this is the same model of rapid growth through the growth of domestic demand that the White House economic bloc has hoped (not unsuccessfully) since 2018, but in 2023 the success of such a policy is expected to be further ensured by the implementation of deferred demand in 2020-2022. and a partial retreat of the population from the (in this logic, forced) savings model: although households are not expected to completely move away from the increased savings rate in the coming year, the increased intentions to spend them, rather than saving and investing, will ensure growth in actually extremely unfavorable conditions foreign trade. The growth in demand will coincide with the stabilization of imports, which will amount to about 15% of GDP by 2026 (as in 2023). It should be noted that, at least for consumer imports, with a strong current account surplus, imports, primarily from Asian countries, may eventually be even higher than in “pre-sanctions” times, and effectively compete with the growth of the corresponding sectors of industrial production in the Russian Federation, limiting growth in them. At the same time, the ruble in the forecast of the Ministry of Economy (slightly stronger than now) looks almost constant – for which, perhaps, special efforts will be made.
What do the ruble and dollar look like in the forecast of the Ministry of Economy
The ruble in the forecast of the Ministry of Economy, based on its logic, will strengthen in the near future – from 76.5 rubles / $ on average in 2023 (which implies an increase in the exchange rate until the end of the year); from 2024 to 2026, it is expected to be more or less stable – at the level of 76.8 rubles / $ (2024) – 78.8 rubles / $ (2026). It should be noted that in the forecast of the Ministry of Economy there is no assumption about the radical liberalization of the capital control regime, introduced in March 2022 after the imposition of sanctions against the Russian Federation in connection with the start of its military operation in Ukraine. Recall that the president suggested that the Central Bank discuss some correction of this regime. According to Kommersant, it is possible as a limited liberalization in certain areas, but possible measures are also being discussed to limit the conversion of the ruble in transactions for the sale of business of foreign companies in the Russian Federation (including limits on monthly conversion for such transactions). First of all, the authorities are interested in this measure in removing excess volatility in the coming months in the foreign exchange market, and not in limiting the possibility of withdrawing capital from the Russian Federation, which in any case, in relatively rare cases, can be implemented by a “single payment” for a specific transaction.
At the same time, the extremely favorable interim macro forecast of the Ministry of Economy in the current conditions does not imply either an increase in the budget deficit above the one announced now, or a significant increase in government spending in 2023 (the interlocutors of Kommersant confidently explain the budget deficit that looks large at the beginning of this year by the technical features of the formation of budget revenues at the beginning of 2023 , payment lags for exports and increased advances in government orders), nor the refusal of the Ministry of Economy of soft budget consolidation. Although analysts are moderately skeptical about the optimism of the Ministry of Economy, they pay attention to the budgetary and overall realism of the department’s calculations, while noting, however, that, like any such forecast, it does not and cannot take into account new exogenous shocks. A separate issue is the correspondence between the forecast of the Ministry of Economy and the expectations of the Bank of Russia. The Central Bank has always allowed a “reversal” of domestic demand from savings to consumption, but not as a “purely positive” scenario, at least for 2023 – inflation in the forecast of the Ministry of Economy corresponds to moderate, not high domestic demand of the previous forecasts of the Central Bank.
What analysts say about the new forecast of the Ministry of Economy
The improved forecast of the Ministry of Economy “removes some of the budget risks and it will be easier for the authorities to meet the initial deficit plan of about 2% of GDP, even if it is likely to be exceeded,” notes Dmitry Polevoy from Lokoinvest. Meanwhile, the current forecasts of the ministry, although higher than the consensus (see “Kommersant” dated April 10), but realistic, analysts say. Recall that in March, FocusEconomics improved the consensus forecast for a recession in the Russian economy in 2023 from 2.2% to 1.8% (the range of forecasts is from minus 7.1% to 1%), and in 2024 the forecast for its growth was worsened from 1 .1% to 1% (range – from minus 6% to plus 3.1%). “The forecast for economic growth for 2023 does not look sky-high, although we still expect more modest dynamics just above 0% due to a more restrained view on the prospects for consumption and especially investment,” notes Mr. Polevoy. “We are more skeptical about the forecast from 2024 – somewhat surprising is the steady growth of GDP above the potential 1-1.5%, high growth in real wages, which is likely to outpace productivity growth, suppressed by sanctions and the inevitable backlog in technology, and exports are hardly worth expecting much support in conditions of slowing global growth”.
The main reason for the more modest forecasts of analysts both for the current year and for 2024 is the worst growth expectations for both consumption and investment. However, they acknowledge that in 2023, household demand will be the main source of support for the economy, including through a temporary acceleration in wages and incomes, which will not allow inflation to fall below 6%.
“The advantages in terms of investment and industry, which is waiting for a decrease in production and oil refining, are doubtful,” economists of the MMI Telegram channel are convinced. They also note that the hypothesis of the ruble strengthening from current levels suggests that it will be possible to solve problems with payment for exports and it is not clear how this can be done. “The forecast for the ruble exchange rate is close to our expectations, assuming a slight increase in the remaining months to an average of 77.6 rubles / $, that is, 6-7% from current levels. In the coming months, we still expect an improvement in the trade balance, which, together with a smaller outflow of capital, will return the ruble to 74–76 rubles / $ in the next three to six months,” Lokoinvest, in turn, believes.
Meanwhile, MMI analysts remind that the current forecast of the Ministry of Economy can be realized only in the absence of new shocks, while in 2022 there were two shocks (February and September), and the hypothesis that this year the Russian Federation will pass smoothly is very bold. However, they remind that the ministry, in their understanding, is not a macro forecast in the academic sense, but a target scenario – this is what the government would like to see, that is, a slight increase.
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