How will the Russian economy perform until 2025? Report published by the Russian Center for Macroeconomic Analysis and Short-Term Forecasting
Growth is expected to return by 2025 with varying rates of development depending on different scenarios of geopolitical change, including “active transformation”
According to the new macroeconomic forecasts of the Russian Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF).
However, the implementation of such a scenario is only possible if Russia can provide essential imports, bring goods to new markets and implement technological import substitution. Otherwise, GDP growth will be between 1.3 and 1.9%.
Analysts called the CMASF forecast realistic and underlined the need to improve the geopolitical situation.
Over the next 10 to 15 years, the pressure of sanctions on Russia will continue, with CMASF saying that sanctions are always imposed for a long time and that their cancellation is a complex political and bureaucratic process. As a result, Russia cannot “wait” for the restrictions, but the sanctions will be gradually eroded, the report notes.
“As early as three or four years after the imposition of sanctions, formal or actual withdrawals ensue – in fact, this is already happening,” the forecast points out.
Based on the long-term sanctions pressure, there are four scenarios for the development of the Russian economy.
Scenario One – Crisis
This only has a 10% probability and is not discussed in detail in the report.
Scenario Two – Autarky
Autarky refers to the economic regime developed due to Russia’s self-sufficiency, in which case Russia’s foreign trade turnover is minimized. The implementation of this option is also considered unlikely at 15% probability; however, this could turn out to be the only possible scenario in the event of a new sharp escalation of the conflict between Russia and its geopolitical adversaries.
Scenario Three – Situational Adaptation
The probability of such a scenario is 35% and implies an extremely prudent macroeconomic policy. Accordingly, there is no resource to expedite the investment process in such a scenario. According to this forecast, Russia’s economic growth between 2025 and 2030 would be between 1.3 and 1.9%. Between 2022 and 2024, the decline in Russia’s GDP will be around 2.2 to 2.5%.
Scenario 4 – Active Transformation
The fourth and most likely scenario for the development of the Russian economy (40% probability) is the “struggle for growth” or “active transformation” scenario. This presupposes the application of efforts aimed at modernizing the Russian economy to the new conditions.
If implemented, Russia’s economic growth will begin in 2025. During the period 2025 to 2027, GDP growth will be between 2.2 and 2.6 percent.
In 2028-2030, growth will be 2.3 to 2.7%. If correct, these indicators show that Russian GDP growth will be close to pre-Ukrainian conflict levels of 3%.
The period entered now, between 2022 and 2024, will see a decline in GDP of between 1.3 and 1.6%. This is very different from the latest forecast from Russia’s Ministry of Economic Development, which issued a forecast of Russian GDP falling by 7.8% in 2022, a slight further decline of 0.7% in 2023, but a return to growth in 2024. at 3.2%, continuing in 2025 at 2.6%.
Investments in fixed assets and consumption of the population in 2022-2024 will also decrease, and from 2025 the indicators will increase. Unemployment until 2024 will fluctuate between 5.4 and 5.8% of the active population; but will decrease from 2025.
CMASF also said that the implementation of Scenario Four – Active Transformation – under current conditions is only possible if all six “loops” of economic policy are used in conjunction, says CMASF.
- Management scheme: ensure a balance between public administration, including the planning of maximum freedom for small and medium-sized enterprises.
- Socio-territorial contour: fix the interregional and intersectoral flows of employees and lighten the burden of industries with excess labor without overheating the market. In particular, the policy of retraining employees according to the new requirements of the labor market (with a capacity of approximately 1.5 million people per year) should be integrated into a single system.
- Technological circuit: ensuring sovereignty, the development of critical technologies and the modernization of the economy. This requires technological import substitution.
- Investment management loop: being the mutual link between public and private investment policy.
- Fiscal and financial outline: provide sufficient resources to modernize the economy and maintain financial stability. Most important here is the link between the fiscal financial plan and the monetary plan.
- Foreign economic contour: the introduction of Russian products into new markets, the supply of critical imports, as well as the movement to friendly countries of certain components of production chains vulnerable to sanctions, with the subsequent import of finished products.
The Russian Ministry of Economic Development was asked if it agrees with CMASF’s long-term forecast. They noted that when preparing a socio-economic development forecast, the ministry traditionally interacts with leading Russian experts in macroeconomics, including the CMASF, stating: “We will present our official forecast next month (September 2022) as part of the budget process.
Maxim Reshetnikov, Russia’s Economic Development Minister said that the Russian economy has turned out to be much more stable than Western and domestic experts thought.
Experts see the main contradictions of economic policy in the new conditions in the strengthening of the functionality of the state, the release of surplus employees and the strengthening of the importance of foreign economic activity as a source of resources in currencies.
Stanislav Murashov, Russian economist at Raiffeisen Bank agrees with CMASF. According to him, the normalization of energy exports in other markets will give Russia a solid basis to improve GDP forecasts, despite the decline in investment and the consumption sector. In addition, after the initial decline, there is potential for recovery, which forms growth on the weak base of previous years.
If Russia overcomes the geopolitical crisis, it will be able to grow from its own internal resources, according to Nikita Moiseev, a professor at the Russian University of Economics, who observed: “If Russian GDP growth drops by 10%, then the growth momentum could be 5 to 6%. If the geopolitical rhetoric does not change and we remain in the same isolation, then our growth will be 1.5% thanks to our internal resources. But without attracting foreign investment and capital, of course, it will be difficult.
Nikita Moiseev, however, pointed out that when relations with the West normalize, Russian economic growth will then exceed the world average.
Briefing Russia is written by Dezan Shira & Associates. The company has 28 offices across Eurasia, including China, Russia, India and ASEAN countries, assisting foreign investors in the Eurasian region. Please contact us at [email protected] for Russian investment advice or assistance with market intelligence, legal, tax and compliance issues throughout Asia.