Russian President Vladimir Putin has made the most optimistic forecast for this year’s economic performance of any government to date, saying there will be no budget deficit and economic contraction will not exceed 2.5 % on September 7.
“State finances have stabilized, and I would like to note that this year’s budget will show a surplus of up to 0.5 trillion rubles, or about 485 billion rubles ($8 billion) despite all dismal projections “, he said during a plenary session of the Eastern Economic Forum (EEF) on September 7.
Professional economists from the Central Bank of Russia’s (CBR) Macroeconomic Survey have further improved Russia’s growth estimate for 2022, reducing the expected contraction by a further 1.8% to -4.2%. (chart)
There will not be a sharp decline in the Russian economy as expected, Putin added. “It was predicted that there would be a very big drop in the economy and in GDP. It’s not going to happen. There will be a drop, but it will be insignificant, somewhere around 2-2.5%,” he said.
Russia’s economy has fared much better than expected in the face of extreme Western sanctions, thanks in part to its hugely profitable oil exports.
Yet Putin’s predictions are significantly better than the government’s. The CBR and line ministries predict a contraction of 4-5% this year. In April, Russian Finance Minister Anton Siluanov predicted that the budget would end this year with a deficit of 2% of GDP, or about 2 trillion rubles.
The CBR was also beaten with a gloomy monetary policy strategy released on August 12. This comes on top of a gloomy and leaked macroeconomic report for top politicians. However, as bne IntelliNews reported, the leak is likely part of the posture ahead of the establishment of a new three-year budget later this year.
Russia has gone through the most difficult situation in the economy, Putin continued. “I would like to note, in our opinion, our experts both in the government and in the presidential administration believe that the peak, the most difficult situation [in the country’s economy] has been crossed. The situation is normalizing, which is also evidenced by macroeconomic indicators,” he said.
The authorities will continue their efforts to defeat inflation, Putin added. “At least everything will be done for that,” he noted.
Inflation in Russia is falling, by the end of the year its level could reach around 12%, Putin said.
“The short-sighted actions of Western authorities have also triggered global inflation, it has already exposed long-term highs in developed economies. At the end of July, inflation in the United States was 8.5%. We have it now at 14%, trending down, unlike western economies. I think it will be around 12% by the end of the year,” he said.
According to many experts, Putin continued, by the second quarter of next year, Russia will most likely reach the inflation target. “Some say 5-6%, and others say 4% will be achieved. Let’s see, anyway, the trends are positive,” he said.
Separately, Russian Energy Minister Nikolay Shulginov also gave a very optimistic forecast for oil production, speaking to journalists at the Forum. He said that by the end of 2022, Russia is expected to slightly reduce its oil production (by about 2%), oil refining will be reduced by 8% to about 262 million tons.
“There is an increase in oil [production] now, but at the end of the year, production is expected to be slightly lower than last year – by around 2%. For petroleum refining, an 8% drop is expected, based on the current trend. By the end of the year, it will be around 262 million tonnes,” he said.
Previously, the government predicted that production could fall by up to 15% this year.
According to the Central Dispatching Department of the Fuel and Energy Complex, in 2021 Russia increased its oil and condensate production by 2.2% year-on-year to 524 million tonnes. Processing increased by 3.9% to 280.7 million tonnes.
Professional economists from the Central Bank of Russia’s (CBR) macroeconomic survey have further improved Russia’s growth estimate for 2022, reducing the expected contraction by a further 1.8%.
According to the CBR’s recent survey of macroeconomists, the Russian economy will show a contraction of 4.2% in 2022 compared to the 6% suggested in its June survey.
The survey also indicates that annual inflation is expected at 12.9% Dec/Dec instead of 15% Dec/Dec. The expected easing of inflationary pressure could force the regulator to cut the interest rate further – in 2022 its average level, according to the CBR survey, will be 10.5%, whereas a month ago, it was estimated at around 11%.
Labor market positions are also expected to remain relatively stable – the unemployment rate has been reduced to 4.9% from 5.6%, while the nominal wage growth rate has been revised upwards to 10.4 %y/y vs. 10%y/y in CBR’s June survey.
“Long-lasting recession with a more moderate contraction in 2022. While these projections are seen as a relevant reflection of a better-than-expected macroeconomic picture in 1H22, we still believe downside risks could shift to late 2022/early 2023 , particularly against a backdrop of weakening fiscal positions and subdued domestic consumption,” BCS GM said in a note.