By John Meyer, financial consultant, for Eurasia Business News, March 12, 2022
Smolenskaya embankment, Moscow, October 2017 – Photo credit : Swann Collins.
Inflation in Russia in 2022 will be +20% and should decrease to +8% in 2023, according to the Macroeconomic Survey of the Bank of Russia. Analysts surveyed by the Russian central bank expect that the national GDP could decrease by 8% by the end of 2022, but in 2023 it would grow by 1%.
Earlier, the Bank of Russia expected that by the end of 2022, annual inflation would be +4.0-4.5%, after the peak of +8.73% in January 2022. However, for the only week from February 26 to March 4, inflation in Russia accelerated by 2.2%, amounting to an annual inflation of +10%. This sharp increase over the week is the direct result of the strong Western economic sanctions imposed against Russia in response to the military operation in Ukraine. According to analysts, in 2023 inflation would be at +8% and would lower in 2024 to +4.8%.
The average key rate of the Russian central bank in 2022, according to expectations, will be +18.9% per annum, in 2023 +14.1% and +7.8% in 2024.
Before the war in Ukraine, the economists of the Russian central bank expected a GDP growth by the end of the year by +2.4%. After the start of the military operation on February 24, they changed the forecast. Now, according to analysts of the regulator, Russian GDP in 2022 will fall by 8%. By 2023, the national GDP should rise by +1% and +1.5% by 2024, which does not compensate however the fall of 2022.
Regarding nominal wages growth, analysts raised their forecast to 9.5% in 2022 and 2023 (+1.5pp and +3.2pp respectively). Forecast for 2024 have been increased by 0.8 p.p. up to 6.8%.
The Bank of Russia forecast that the exchange rate of the US dollar to the ruble in 2022 will average 110 rubles, in 2023 – 118.4 rubles, in 2024 – 120 rubles.
Western sanctions taken over the past two weeks will generate lasting effects on the Russian economy. Indeed, gradually a shortage of foreign currency for purchases will appear, a halt in trade operations will happen, a shortage of industrial components and raw materials from abroad for production will take place. Russian companies could begin to stop or reduce their activity. Wages could be at risk, unless the Russian state decide to use the “helicopter money” policy, taking the risk of fuelling a high inflation.. Pensions will not grow as fast as prices rise, while they should already double.
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The restrictive measures against theuse of foreign currency in Russia should boost the local demand for gold and silver, as Russian citizens will worry to see their savings and puchasing power be destroyed by high inflation and ban on purchase of US dollars and euros.
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