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In the positive zone: IMF improves forecast for Russian economy in 2023

Photo by Ehimetalor Akhere Unuabona on Unsplash

The International Monetary Fund has improved Russia’s economic forecast for 2023 for the third time in a row. According to the organization’s calculations, the country’s gross domestic product will increase by 0.7% instead of the previously expected 0.3%. This is stated in the IMF World Economic Outlook report published on Tuesday, April 11.

In addition, the experts of the fund for the fourth time have revised their estimates for the Russian economy in 2022. So, in the conditions of unprecedented external pressure the size of GDP of the country decreased only by 2.1% that corresponds to the data of Rosstat. Thus, the decline was even less deep than in the pandemic year of 2020 (-2.7%) and the crisis year of 2009 (-7.8%).

It is noteworthy that exactly one year ago IMF experts predicted an 8.5% drop in the Russian economy in 2022. However, as the country adapted to the sanctions shock, the IMF analysts first improved their estimate to -6%, then to -3.4%, and then to -2.2%.

As explained by the Fund, last year the Russian economy was significantly helped by a significant increase in revenues from energy sales. The same factor will continue to have a positive impact, but to a somewhat lesser extent in 2023 and possibly in 2024, the IMF does not exclude.

According to the IMF study, even after the introduction of the price ceiling on Russian oil and restrictions on its imports, the supply of raw materials from Russia remained stable. According to the organization, Moscow, although with large discounts, but has managed to fully redirect the export of hydrocarbons to the countries that have not imposed sanctions. This is especially true of India and China.

In general, to date, the Russian economy is not clearly shifting for the worse, which may allow it to gradually return to the growth trajectory in 2023. Alexander Abramov, head of the Laboratory for Analysis of Institutions and Financial Markets at the Institute of Applied Economic Research of the Russian Academy of Sciences, shared this opinion with .

“Inflation in Russia is steadily declining, consumer demand is growing slightly, and investment activity is maintained at normal levels. So the factors for a small growth this year really remain,” Abramov said.

In addition, the expected continued high prices for export goods and the recent weakening of the ruble will provide the economy with additional income. This, in turn, should also contribute to a gradual increase in GDP this year, according to Vladimir Kovalev, analyst at TeleTrade.

“Moreover, significant budget allocations for state orders in early 2023 will stimulate production and sales in many companies, primarily in the public sector, in the coming months. These and other factors, which have already manifested themselves from January to April, are positive for the economy,” the interlocutor added.

President Vladimir Putin also gave an optimistic assessment of the economic situation in Russia. He said on Tuesday that previously when preparing the budget, the authorities were based on a possible decrease in GDP by 2.9% in 2022 and by 0.8% in 2023. Nevertheless, the estimates have now risen substantially.

“The positive trends are strengthening. Thus, according to operative data, since the beginning of April, retail trade turnover has added almost 25%… There is reason to believe that economic activity will continue to increase,” Putin emphasized.

The International Monetary Fund also revised its forecast for the Russian economy next year, but for the worse. The organization estimates that in 2024, the country’s GDP will increase by 1.3%, rather than by 2.1% as previously thought.

“The IMF sees that the economy is adapting to the sanctions pressure. We have prompt measures from the government and the Central Bank, and business has managed to adapt to all external shocks and has been able to find solutions to stabilize its processes. Companies are already on a positive trajectory. Nevertheless, the prospects for next year are still less certain,” Georgy Ostapkovich, director of the Center for Conjuncture Studies at the Institute of Statistical Research and Knowledge Economics at the National Research University Higher School of Economics, told .

According to him, in order to return to a more confident rate of GDP growth it is necessary to continue to reformat the economy. In particular, it is necessary to gradually move away from the raw materials model and actively engage in import substitution, as well as the production of goods with high added value and degree of processing.

“To do this, we need to develop the manufacturing industry and high-tech services. We need to make a technological breakthrough and create development institutions that would work for the economy. It is necessary to raise the qualifications of managers, workers and specialists. This, of course, is a long-term and expensive process, but within three to four years it will allow us to reach the qualitative growth of the economy”, – stressed Ostapkovich.

It is noteworthy that the IMF has once again worsened the forecast for the global economy over the next two years. The experts of the fund expect that in 2023, the global GDP will increase by 2.8%, and in 2024, by 3%. It should be noted that back in January analysts expected an increase of 2.9% and 3.1%, respectively.

As Pierre-Olivier Gourinchas said, the global economy can be supported by the revival of activity in China. At the same time, the global growth will be hampered by the deteriorating situation in Europe, believes the expert.

“The economic slowdown this year is concentrated mainly in advanced economies, especially in the eurozone and the United Kingdom … Inflation remains more resilient than expected … Meanwhile, recent instability in the banking system has reminded us that the situation is still fragile,” Gurincha wrote in his blog on the IMF website.

Recall that in early spring the banking crisis broke out in the U.S., which later spread to Europe. Thus, within a few days three major credit institutions went bankrupt in the States. The news about it provoked panic, as a result of which people withdrew from their deposits almost $500 billion, and the value of the shares of a number of other American banks fell sharply.

This was followed by a collapse of stock prices in Europe. As a result, for example, Credit Suisse, the second largest bank in Switzerland, founded back in 1856, was on the verge of bankruptcy.

“The fact of recession in developed economies is becoming more and more evident. This is mainly due to the fact that interest rates continue to rise and inflation is falling quite slowly. Against this background, the factor of the banking crisis in the U.S. and Europe only aggravates the general situation,” Alexander Abramov said.

Back in 2022, after the imposition of energy sanctions against Russia in the U.S. and the EU, fuel prices rose sharply and inflation accelerated at a record pace. To combat rising prices, U.S. and European regulators began to raise interest rates. Although inflation eventually managed to slow down, today its level is still several times exceeds the target.

As part of a further curbing of prices, the monetary authorities want to continue raising rates. However, such actions risk aggravating the situation in the banking sector even more, according to experts.

“An unpleasant feature of the banking crisis is that it can be quite long. Problems at the level of medium and small banks can persist for a very long time – as long as rates continue to rise. So this crisis affects the economic growth of both the U.S. and the Western countries as a whole,” Abramov concluded.

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