Page 51 - RusRPTSept23

The threat of a recession in Russia is growing. The economic statistic that Putin loves to cite is GDP growth. The economy last year contracted 2.1%, but it grew 4.6% in the second quarter of this year. “Sure, for a few months in the middle of last year, things were very difficult. But ever since the third quarter [of 2022] Russia has seen economic growth,” Putin boasted earlier this week.
But this rapid growth is down to two things — public spending (mostly on the military) and a dovish monetary policy. However, as the Russian currency tumbles, the Central Bank has turned more hawkish and is again raising interest rates. Following a dramatic slump in the ruble last week, it hiked the rate by 350 basis points, taking it to 12%. That helped Russia’s currency, but it has significantly increased the danger of Russia entering a recession in the coming months — from 6 to 21%, according to calculations by Bloomberg.
Bloomberg assessed the likelihood of a recession on the basis of the difference between the yields of five-year and three-month government bonds. The sudden rate hike flattened the yield curve but also reduced the spread between these securities’ yields. And this indicates a greater risk of recession, according to Bloomberg.
Interest rates on short-term borrowing remain lower than 12%, which suggests that the market expects a rate cut in the next three months, Bloomberg reported. However, if expectations start to turn toward the 12% rate remaining in place for longer, the likelihood of recession in the next six months could double to around 40%.
Experts at the centre for Macroeconomic Analysis and Short-term Forecasting have also written about the threat of recession. “The weakening ruble (and rising prices for imports) plus the hike in the Central Bank’s base rate could reverse the emerging upward trend,” they warned in a report published last month.
Russia's GDP to grow by more than 2% by end of year, says Economy Minister In mid-June, Maxim Reshetnikov reported that the GDP growth rate in 2023 is likely to be higher than the published forecast of the Economic Development Ministry of 1.2%
The official CBR macroeconomic forecasts are here.
RUSSIA Country Report September 2023 www.intellinews.com