Page 7 - Russia OUTLOOK 2024

zenith of growth is predicted to occur in the fourth quarter of 2024.
But Russia has enough cash in reserves to last at three years or more and Putin’s calculation is that he can win the war with Ukraine well before that, when the economy can be repaired, and the distortions imposed by military spending will end.
CBR rate hikes
While central banks in the West were gearing up to initiate interest rate cuts on the back of a pan-regional fall in inflation, Russia hiked its prime rate by 100bp for the fourth time in 2023 to 16% on December 14 – one point higher than those in war-torn Ukraine.
Inflation remains Russia’s major economic headache that will slow the economy in 2024. However, stepping back and inflation is the only serious problem, as all the other indicators are healthy and the war has little effect on the average Russian’s daily life.
During the December rate hike press conference Nabiullina struck a pessimistic tone. She likened the Russian economy to a car driving too fast: "It can go, it might even be quick, but not for long," she cautioned.
“Think of the economy as an automobile,” Nabiullina said. “If we try to drive it faster than it can go, and pump the gas as hard as we can, sooner or later the engine will burn out and we won’t get far,” the ultra-conservative central banker said.
The CBR predicts that the 2023 inflation in Russia will hover around 7.5%, hitting the upper limit of the Central Bank's projected range. Russian President Vladimir Putin suggested it might even approach 8% in his annual “meet the people” press conference the same week.
Over the last four months of 2023 core inflation surged over 10% in annualised terms, with Nabiullina citing the service sector as an example, experiencing a 14% inflation spike in three months to December, despite minimal impact from the exchange rate and other one-off factors.
This economic overheating is attributed to an inability to meet surging demand, with recent figures revealing that GDP growth is causing a more significant imbalance than anticipated by the Central Bank.
When the Central Bank hiked rates in both 2014-2015, and in early 2022 after the invasion of Ukraine, it was quick to bring them down again once the immediate crisis had passed. This time, however, high rates are here to stay, Nabiullina told journalists. She emphasised that the current high inflation is a systemic problem – and not linked to exchange rate fluctuation, or other
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