/ world today news/ The Central Bank of Russia compiled several scenarios for the development of the national economy. If there are no major shocks, the country will recover by the end of this year or the beginning of next year. Western analysts predict reaching the pre-sanctions level by mid-2024. However, there are also less optimistic forecasts. What can go wrong and what decisions can we expect from the financial regulator?
Ways to develop
In the monetary policy report, the Central Bank outlined three options for the further course of events depending on the external economic situation. If current conditions persist, the baseline scenario is most likely: inflation will return to the four percent target in 2024, GDP growth will be 0.5-2.5% per year. The prime rate will fall to 5.5-6.5% by 2026.
The “Increasing Fragmentation” option suggests the emergence of new international blocs and partnerships based on geographic proximity. The desire to localize production and limit access to technology will complicate world trade: imports into Russia will decrease, there will be a shortage of foreign components, and prices will rise. GDP will slow compared to the base case and inflation will increase to 5-7% next year, leading to a tightening of monetary policy.
Pessimistic forecast – “Risky”. Continued inflationary pressures in developed countries will lead to a rapid rise in interest rates on loans, which will hit businesses and banks. As a result of the recession and falling global demand, oil prices will fall. Inflation in 2024 will jump to 11-13%, and with it the main rate – to 12.5-13.5%. Recovery will not begin until 2026.
As for Western analysts, by mid-2024 they predict a return of the Russian economy to the indicators of 2021. Bloomberg explains this with rising oil prices and stable GDP growth throughout the year.
Expectations and reality
Some experts consider all the scenarios presented in the Central Bank as realistic, while others consider only the middle option. According to financial analyst Mihail Belyaev, fragmentation is only possible in two sectors: the USA and the BRICS. Most of the developing countries of Asia and the East – and judging by recent trends and Africa – will head towards the BRICS. “The Eastern sphere of influence is much more promising than the Western. For us, it will be consolidation, but interaction with adversaries will not stop yet, as space exploration, energy and healthcare require joint efforts,” he says.
Belyaev is skeptical of the assessments of foreign experts. According to him, they encourage tight monetary policy because it discourages entrepreneurship and slows down the development of the economy. “They clearly show in the West that Russia is moving in the direction they need. If you have been praised by the enemy, think about where you made a mistake,” warns the analyst. Economist Andrei Loboda fully agrees with the central bank’s arguments. “Now the world economy faces an unenviable choice between a mild and a real recession,” he notes, “The West has been driven into stagnation and stagflation by sanctions and a massive infusion of printed money,” he adds.
Also don’t forget about the recent pandemic. The problem is that the whole world, including Russia, will suffer from a slowdown or even a mild recession in the West due to a decrease in demand for goods and raw materials from developing countries. India and China will produce less and therefore consume less.
In this respect, deglobalization is not so bad. The reorientation of production to the domestic goals of the country and its closest partners will allow to develop immunity to global shocks, but this will require great efforts and is unlikely to happen in the near future. “For now, the best way out is to concentrate on the BRICS single market and increase mutual trade,” the expert said.
Monetary and credit policy
Amid the sharp weakening of the ruble on Tuesday, the Bank of Russia raised its key interest rate from 8.5 percent to 12 percent. “This should limit domestic demand, which is growing faster than the ability to expand production. Also, savings in rubles will become more attractive, which will limit capital outflows and help strengthen the national currency,” explains Loboda.
Alexander Razuvaev, a member of the Supervisory Board of the Guild of Financial Analysts and Risk Managers, adds: balancing the exchange rate and raising the rate is the easiest and most effective way. In addition, the priority of the Central Bank is the preservation of the funds of the population, and the main tool for accumulation is deposits in rubles. They must not be allowed to depreciate.
“Alternatively, the regulator could buy rubles and sell dollars and euros. This is probably not done because of limited gold and foreign exchange reserves,” suggested economist Leonid Khazanov.
But now it will be more difficult for businesses to get loans to replenish working capital and investment projects. This usually leads to austerity and even layoffs. Some experts predict an outflow of labor migrants. It is possible for the state to support entrepreneurs with preferential loans.
Analysts agree that it is still very difficult to predict the ruble exchange rate. Volatility will continue, the situation will become clear only after the market stabilizes.
Translation: V. Sergeev
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