Page 86 - RusRPTNov22

(-4.0)—(-1.0)%. However, the Bank of Russia expects that the Russian economy will start growing in the second half of 2023. In 2024–2025, GDP will grow by 1.5–2.5% annually.
Inflation risks. There is a balance between proinflationary and disinflationary risks over a short-term horizon. As to a medium-term horizon, proinflationary risks still dominate and have grown slightly since mid-September.
A further escalation of external trade and financial restrictions, fragmentation of the global economy and the financial system could lead to a sharper decline in the Russian economy’s potential than expected in the baseline scenario. Specifically, supply-side constraints may increase due to problems with the supply of equipment, slowly replenishing stocks of finished products, raw materials and components in the event of an escalation of negative trends in import dynamics. In turn, the materialisation of growing risks of a global recession may further weaken external demand for Russian exports and provoke a weaker ruble as a result.
As for domestic conditions, proinflationary effects may be more serious than in the baseline scenario due to changes in the size of the labour force and the employment structure, including amid the partial mobilisation. Short-term proinflationary risks are also caused by high and unanchored inflation expectations, which are particularly sensitive to the ruble’s exchange rate fluctuations. Under these conditions, the growth of the most liquid assets in the structure of household savings may spur increased consumer demand in the future.
The most significant disinflationary risk for the baseline scenario is the continued high propensity of households to save amid increased general uncertainty, as well as the duration of households’ adaptation to the new supply structure in consumer markets. A more rapid adaptation of the economy, accompanied by an active recovery of imports among other things may also have a disinflationary effect. Disinflationary effects of the record harvest in 2022 could also be more noticeable in the coming months.
The movements of the economy and inflation largely depend on fiscal policy decisions. The Bank of Russia takes into account the decisions already made regarding the mid-term expenditure path of the federal budget and the fiscal system as a whole. In case of a further budget deficit expansion, tighter monetary policy may be required to return inflation to target in 2024 and keep it close to 4% further on.
The Bank of Russia will make its further decisions on the key rate, taking into account actual and expected inflation movements relative to the target, the process of the structural transformation of the economy, as well as assessing risks from internal and external conditions and financial markets’ response to these risks.
86 RUSSIA Country Report November 2022 www.intellinews.com