How Will The Russian Economy Perform To 2025? Report Issued By The Russian Centre For Macroeconomic Analysis & Short-Term Forecasting

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Growth to return by 2025 with varying development rates dependent on different geopolitical change scenarios, including ‘Active Transformation’ 

The Russian economy will attain planned GDP growth levels by 2025 and by 2030 will progress in the range of 2.2 – 2.7%, which is close to pre-2022 targets, according to the new macro forecast of the Russian Centre For Macroeconomic Analysis & Short-Term Forecasting (CMASF).

However, the implementation of such a scenario is possible only if Russia can provide critical imports, bring goods to new markets, and implement technological import substitution. Otherwise, GDP growth will be between 1.3 to 1.9%.

Analysts have called the CMASF forecast realistic and point to the need to improve the geopolitical situation.

In the next 10-15 years, the sanctions pressure on Russia will continue, with CMASF stating that sanctions are always imposed for a long time, and their cancellation is a complex political and bureaucratic process. Accordingly, Russia cannot “wait out” the restrictions, however sanctions will undergo gradual erosion, the report notes.

“As early as three or four years after the imposition of sanctions, formal or actual withdrawals arise from them – in fact, this is already happening” the forecast emphasizes.

Based on long-term sanctions pressure, there are four scenarios for the development of the Russian economy.

Scenario One – Crisis

This has a probability of only 10%, and it is not considered in detail in the report.

Scenario Two – Autarky

Autarky refers to the economic regime developed due to the Russia becoming self-sufficient, in which case Russia’s external trade turnover is minimized. The implementation of this option is also considered unlikely at 15% probability; however, it may turn out to be the only possible one scenario in the event of a further sharp escalation of conflict between Russia and its geopolitical opponents.

Scenario Three – Situational Adaptation

The probability of such a scenario is 35% and involves an extremely cautious macroeconomic policy. Accordingly, there is no resource for accelerating the investment process in such a scenario. Russia’s economic growth according to this forecast between 2025 and 2030 would be between 1.3 to 1.9%. Between 2022 and 2024, Russia’s GDP decline will be in the range of 2.2 to 2.5%.

Scenario Four – Active Transformation

The fourth, and most likely scenario for the development of the Russian economy (40% probability) is the “Struggle for Growth” or the “Active Transformation” scenario. This assumes 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 in the range of 2.2 to 2.6%.

In 2028–2030, growth will be 2.3 to 2.7%. If correct, these indicators show that Russian GDP growth will be close to the pre-Ukraine conflict levels of 3% growth.

The period entered now, between 2022 and 2024, will see a decline in GDP of between 1.3 to 1.6%. That is significantly different from the latest forecast from the Russian Ministry of Economic Development, who have released a forecast for a decline in Russian GDP of 7.8% in 2022, a small further decline of 0.7% in 2023, but a return to growth in 2024 to 3.2%, continuing in 2025 to 2.6 %.

Investments in fixed capital 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 to 5.8% of the working population; but will decline from 2025.

The CMASF also stated that the implementation of Scenario Four – Active Transformation – under the current conditions is only possible if the six “loops” of economic policy are jointly used, the CMASF states.

  1. Management outline: providing a balance between public administration, including planning for maximum freedom for small and medium-sized businesses.
  2. Socio-territorial contour: fixing the inter-regional and inter-sectoral flow of employees and relieving the burden from labor-surplus industries without overheating the market. In particular, the policy of retraining employees in accordance with the new requirements of the labor market (with a capacity of about 1.5 million people a year) should be linked into a single system.
  3. Technological circuit: providing sovereignty, development of critical technologies and the modernization of the economy. This requires technological import substitution.
  4. Investment management loop: being the mutual linkage of public and private investment policy.
  5. Budgetary and financial contour: providing sufficient resources to modernize the economy and maintain financial stability. The most important here is the link between the budget financial plan and the currency plan.
  6. Foreign economic contour: the introduction of Russian products to new markets, the provision of critical imports, as well as the removal to friendly countries of certain components of production chains that are vulnerable to sanctions, with the subsequent import of finished products.

The Russian Ministry of Economic Development has been asked whether it agrees with the long-term forecast of the CMASF. They noted that when preparing a forecast for socio-economic development, 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, the Minister of Russian Economic Development has stated that the Russian economy turned out to be much more stable than Western and domestic experts had thought.

Experts see the key contradictions of economic policy in the new conditions in the strengthening of state functionality, the release of surplus employees and the strengthening of the importance of foreign economic activity as a source of foreign exchange resources.

Stanislav Murashov, Russia economist at Raiffeisenbank agrees with the CMASF.  According to him, the normalization of energy exports in other markets will give Russia solid grounds for improving GDP forecasts, despite the fall in investment and the consumer sector. In addition, after the initial decline, there is recovery potential, which forms growth on the low base of previous years.

If Russia overcomes the geopolitical crisis, then it will be able to grow from its own internal resources, according to Nikita Moiseev, Professor of the Russian University of Economics, who observed “If Russian GDP growth falls by 10%, then the growth dynamics may be 5-6%. If the geopolitical rhetoric does not change in any way and we remain in the same isolation, then our growth will be 1.5% due to our possessing internal resources. But without attracting investments and foreign capital, of course, this will be difficult.”

Nikita Moiseev stressed though that when relations with the West normalize Russian economic growth would then exceed the global average.

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