Page 17 - bneIntelliNews monthly country report Russia May 2024

The most pessimistic scenario for 2024 sees with GDP and household income growth stagnating, and the ruble potentially breaking thorugh the RUB100 to the dollar again, Reuters reported after seeing a copy of the report.
According to the stress test results published at the end of April, under the most severe conditions, the ruble is forecasted to dip as low as 97 against the dollar this year. For 2025, the ministry projects an average exchange rate of RUB106.9 to the dollar and anticipates the price of a barrel of Russian oil could drop to $51.8, with GDP growth decelerating to a mere 0.2%.
This pessimistic is an outlier and contrasts sharply with the Ministry of Economic’s baseline growth prediction for this year of 2.3%. the Central Bank of Russia (CBR) is predicting growth this year will be 2.2% and the Finance Ministry is the most upbeat, predicting a repeat of the 3.6% growth seen in 2023. The International Monetary Fund (IMF) has also recently increased its outlook for 2024 from 1.1% of growth to 3.2%, making Russia the fastest growing of any major economy this year.
Economy Minister Maxim Reshetnikov presented a more optimistic baseline scenario earlier at the end of April, which suggests an improvement in GDP growth for 2024 to 2.8%. However, even this more favourable forecast carries concerns, as it includes a worsened outlook for inflation and a continued weakening of the ruble.
Inflation at 7.7% in March remains a headache despite the 16% prime rates. CBR governor Elvia Nabiullina left rates on hold last week, citing continued inflation pressure.
The Central Bank also worsened its formal inflation forecast for 2024: price growth is expected to be 4.3–4.8%, instead of the 4–4.5% mentioned in the February forecast. The regulator expects inflation to return to 4% in 2025. Inflation is accelerated, among other things, by the labour shortage, explained Nabiullina. Companies are forced to increase wages in order to attract and retain employees, while the market for this money will not have enough goods and services at old prices.
Under all MinEcon’s scenarios, including the conservative and the extreme stress tests, projections indicate a downturn in Russian oil and gas production and exports. The stress scenario is particularly grim and predicts that the export price for Russian oil could fall to $58.5 per barrel as early as this year, descending further to $51.8 by 2025 – a significant drop from the current trading price of around $79 per barrel for Russia's Urals crude.
If these lower commodity prices materialise, the GDP growth is expected to slow to 1.5% this year, plunging to 0.2% in 2025 from the more robust 2.8% and 2.3% forecasted in the baseline scenario.
Investment and real income growth forecasts are similarly bleak under the stress scenario. Fixed capital investment is predicted to increase by only 0.5% this year before falling by 1.5% in 2025. Furthermore, growth in disposable income, which was at 5.4% last year, is anticipated to decline to 1.9% this year and 0.9% next, Reuters reports.
17 RUSSIA Country Report May 2024 www.intellinews.com