Russian macro 2024: Adjusting to new realities may be challenging as realities change

RUSSIA ECONOMICS - Forecast 14 Feb 2024 by Evgeny Gavrilenkov

It turned out that Russia’s 2023 economic growth looked decent, as its nominal GDP exceeded R171 trln and grew by 3.6% in real terms according to Rosstat’s preliminary estimates. Eventually, after a series of revisions, the nominal figure may be even higher—as has happened repeatedly in the past. The growth figure will likely be revised, as well. Recently, Rosstat orchestrated such revisions for 2021 and 2022 GDP by upgrading both indicators.

We believe that the Russian economy may expand by about 3.4% in 2024, i.e., showing some deceleration. Moderating credit growth is one reason for this deceleration. Still, this rate of growth looks acceptable for a country that is trying to rebuild its foreign trade on a different basis and with different countries. Hence, there is a limiting factor—the need for an alternative payment system that could help to expand foreign trade (exports, in particular). So far, this is a work in progress, and various constraints associated with dollar-based foreign trade relations are limiting economic growth in 2024.

As the economy became overheated in 2023, and the CBR hiked the key rate, it seems unlikely that the regulator will want to cut the rate any time soon. M-o-m inflation will likely remain elevated for a few more months. However, it will start gradually declining in y-o-y terms in 2H24 to fall below 6.0% by year-end.

The CBR recently reported that in January 2024, the current account surplus was at $6.4 bln as the trade surplus was sufficiently wide ($9.7 bln). Russia’s balance of payments will remain solid in 2024, and its current account will likely remain stable, while the federal budget deficit will be easy to finance.

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