Russia's Finance Ministry ran an extreme stress test on the economy for the year 2024, that assumes zero growth, a weakening ruble and falling oil and gas revenues in the worst case scenario.

The most pessimistic scenario for 2024 sees GDP and household income growth stagnating, and the ruble potentially breaking through the RUB100 to the dollar again, Reuters reported after seeing a copy of the report.

According to the stress test results published at the end of April, under the most severe conditions, the ruble is forecast to dip as low as 97 against the dollar during the year. For 2025, the ministry projects an average exchange rate of RUB106.9 to the dollar and anticipates the price of a barrel of Russian oil dropping to $51.8, with GDP growth decelerating to a mere 0.2%.

This pessimistic scenario is an outlier and contrasts sharply with the Ministry of Economic Development’s baseline growth prediction for the year of 2.3%. The Central Bank of Russia (CBR) is predicting growth in 2024 will be 2.2%, with the Finance Ministry the most upbeat, predicting a repeat of the 3.6% growth seen in 2023. The International Monetary Fund (IMF) has also recently increased its outlook for 2024, from 1.1% of growth to 3.2%, making Russia the fastest growing of any major economy this year.

Economy Minister Maxim Reshetnikov presented a more optimistic baseline scenario at the end of April, which suggests an improvement in GDP growth for 2024 to 2.8%. However, even this more favourable forecast carries concerns, as it includes a worse outlook for inflation and a continued weakening of the ruble.

Inflation at 7.7% in March remains a headache despite the 16% prime rates. CBR governor Elvia Nabiullina left rates on hold last week, citing continued inflation pressure.

The Central Bank also deflated its formal inflation forecast for 2024: price growth is now expected to be 4.3–4.8%, instead of the 4–4.5% mentioned in the February forecast. The regulator expects inflation to return to 4% in 2025. Inflation is accelerated, among other things, by the labour shortage, explained Nabiullina. Companies are forced to increase wages in order to attract and retain employees, while the market for this money will not have enough goods and services at old prices.

Under all MinEcon’s scenarios, including the conservative and the extreme stress tests, projections indicate a downturn in Russian oil and gas production and exports. The stress scenario is particularly grim and predicts that the export price for Russian oil could fall to $58.5 per barrel as early as 2024, descending further to $51.8 by 2025 – a significant drop from the current trading price of around $79 per barrel for Russia's Urals crude.

If these lower commodity prices materialise, the GDP growth is expected to slow to 1.5% this year, plunging to 0.2% in 2025, from the more robust 2.8% and 2.3% forecast in the baseline scenario.

Investment and real income growth forecasts are similarly bleak under the stress scenario. Fixed capital investment is predicted to increase by only 0.5% this year before falling by 1.5% next. Furthermore, growth in disposable income, which was at 5.4% last year, is anticipated to decline to 1.9% this year and 0.9% next, Reuters reports.

The Finance Ministry also foresees a dramatic depreciation of the ruble, expecting it to breach the RUB100 mark and average RUB106.9 by 2025, with a potential fall to RUB120 per dollar by 2027. These projections underscore the significant economic challenges Russia may face if global conditions and internal vulnerabilities converge as outlined in the stress scenario.

Russia’s Economy Ministry economic outlook scenarios for 2024

source: Reuters