Russia raises main economic forecasts, sees higher year-end inflation

Economic Outlook for Russia in 2024

By Darya Korsunskaya
(Reuters) – A sharper rise in capital investment is one of many improvements to Russia’s 2024 economic outlook, new economy ministry forecasts show. However, stubbornly accelerating inflation may blunt the impact of faster rises in household incomes.

Russia’s economic growth relies heavily on large-scale government spending on arms production as Moscow funds its war in Ukraine. This has led to soaring wages in a tight labor market and strong consumer demand, even with interest rates at 18%.

Moscow now expects gross domestic product (GDP) to climb 3.9% in 2024, an increase from the 2.8% forecast issued in April, said Finance Minister Anton Siluanov last week.

The current government expectations exceed those of analysts polled by Reuters, who predict GDP growth of 3.6% in 2024.

Russia anticipates two consecutive years of strong economic growth, following a 3.6% expansion in 2023 and a 1.2% contraction in 2022 due to Western sanctions over the invasion of Ukraine.

However, inflation is also projected to rise. The economy ministry expects annual inflation to end 2023 at 7.3%, up from an earlier forecast of 5.1% in April, and close to the 7.4% recorded in 2023. These sharp increases follow an 11.9% jump in prices in 2022.

The ministry revised its expectations for real wage and disposable income growth, with both projected to expand faster than the economy and labor productivity, pushing up consumer demand. Coupled with record government spending and a slide in the rouble in 2023, inflation is mounting.

Multiple central bank interest rate hikes to over two-year highs of 18% have failed to control prices, with inflation not expected to return to the bank’s 4% target until at least 2026.

The ministry also raised its forecasts for retail trade turnover, capital investment, and industrial output in 2024. These improvements hinge on optimistic expectations for Russia’s energy exports, with higher oil and gas prices anticipated compared to April forecasts.

The rouble is expected to trade slightly stronger, averaging 91.2 per dollar this year and 96.5 next year. The currency could end 2026 at 100/dollar and gradually weaken deeper into triple figures each subsequent year.

The ministry’s forecast implies a persistent tight labor market, with unemployment projected to remain at a record low of 2.6% until at least 2030. Many individuals have left Russia or joined the military since the invasion of Ukraine began.

Economic Forecast Table (2024-2027)