IMF improves Russia’s economic growth forecast for 2023

 By John Meyer, consultant in financial affairs – Eurasia Business News, July 25, 2023

Smolenskyi Boulevard, Moscow, 2021– Photo credit : Swann Collins.

Experts from the International Monetary Fund (IMF) expect the economic growth in Russia to be +0.7% in 2023 and +1.3% in 2024, after a recession of -2.1% in 2022 because of the armed conflict in Ukraine and the resulting Western sanctions. They reported these figures in the July review of the IMF World Economic Outlook.

This is the third improvement in the IMF’s assessment this year. In the previous report, the IMF had raised its forecast for Russia’s GDP growth in 2023 from 0.3% expected in January to 0.7%. In January, the IMF had revised its expectations for economic dynamics in Russia from a decline of 2.3% to an increase of 0.3%.

According to IMF experts, the main reasons for the improvement in the Russian 2023 GDP forecast in July are the strong performance of the first half of 2023, due to “strong fiscal stimulus that strengthens this strength,” as well as a stable situation in the retail, construction and industrial markets. For 2024, the IMF has maintained its forecast for economic growth in Russia at 1.3%.

The IMF experts have written in the WEO report :

“Brexit, trade tensions between the US and China, and war in Ukraine pose a challenge to international relations and could lead to policy-driven reversal of global economic integration, a process referred to as geoeconomic fragmentation. This process encompasses different channels, including trade, capital, and migration flows.”

The IMF raised its expectations for global GDP from 2.8% in April to 3% in 2023, and kept it at 3% for 2024. The global economy is showing signs of a stable recovery, said Pierre-Olivier Gourinchas, adviser and director of the IMF’s research department.

“The COVID-19 crisis is officially over, and the number of supply chain disruptions has returned to pre-pandemic levels. Economic activity in the first quarter of this year was robust, despite difficult conditions in the world, including against the backdrop of unexpectedly strong labor markets,” he said in a blog post on the IMF website. Nevertheless, the expected growth indicators remain weak against the backdrop of tightening central bank policies in the world, the IMF said.

Russia’s economy will grow by more than 2% in 2023, Russian President Vladimir Putin said during an economic meeting on Tuesday. “Already in the second quarter of 2022, Russia’s GDP began to add about 0.5-0.7% quarterly … We expect that by the end of the year GDP will add more than 2%,” said the head of State.

In April, the Russia’s Ministry of Economic Development improved its 2023 forecast for the growth of the Russian economy from -0.8 to 1.2%, while the forecast for 2024 was lowered from 2.6 to 2%. By 2026, Russia’s GDP would grow by 3%, Minister Maxim Reshetnikov reported. He called the recovery of a strong consumer demand the main source of Russia’s economic growth.

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Following the meeting of the Board of Directors on July 21, the Bank of Russia updated its medium-term outlook for the economy. Taking into account the rapid recovery in demand, the Bank of Russia expects Russia’s GDP growth of 1.5–2.5% this year (instead of 0.5–2.0%).

In July, analysts surveyed by the Bank of Russia also improved their expectations for Russian GDP from 0.5-2.0% in April to 1.5-2.5%. In 2024, respondents expect the economy to grow by 1.0–2.5%, in 2025 – by 0.5–3.0%.

Monetary policy projections assume that the Central Bank of the Russian Federation is adopting a tight monetary policy stance.

The Board of Directors of the Bank of Russia, at a meeting on July 21, raised the key rate by 100 basis points from 7.5 to 8.5 percent per year, the regulator said in a statement. Previously, the rate had remained unchanged since September 2022. Proceeding with such a hike, the Russian central bank gave a strong signal to the market, noting that it would consider a rate hike at future meetings, in order to support the ruble and limit inflation.

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