The International Monetary Fund (IMF) has released one of the most optimistic forecasts for Russia’s economic growth for 2023, predicting 0.3% for this year. The reason? Oil exports will defy sanctions, although exports will fall below the pre-war levels.

International economic institutions are now expressing more optimism than the Russian government about Russia's economy. In its outlook published on January 30, the IMF upgraded its forecast for Russian GDP growth to 0.3% in 2023, up from the previous October forecast of a 2.3% contraction.

The IMF's new outlook on the global economy is also much more positive, anticipating 2.9% growth due to "unexpectedly stable" dynamics, reports The Bell. For Russia, the IMF predicts even higher growth of 2.1% in 2024. This optimistic forecast is credited to the stability of Russia's oil exports and the redirection of trade from sanctioned to non-sanctioned countries.

The IMF's forecast is even more upbeat than the notoriously conservative Central Bank of Russia (CBR) and the cautious Ministry of Economic Development, which predict a decline of 4% and 0.8% respectively in 2023. The IMF's prediction requires a quarter-on-quarter growth of 0.4% for the entire 2023.

Other major economies are also expected to show growth in 2023, but Russia's economic growth is predicted to outpace both Germany and the UK, despite the crushing sanctions, and is far, far better than the 15% contraction for Russia in 2022 predicted at the start of the war. 

The IMF upgraded its forecast for China from 4.4% to 5.2%, and for the US from 1% to 1.4%. Germany is worse off, teetering on the edge of recession and anticipated to grow by only 0.1% in 2023, while the UK has already gone over the cliff into recession and is the only leading economy expected to decline, by 0.6%, in 2023. The UK is being hit by multiple problems, including the hangover from the pandemic and the subsequent cost-of-living crisis, but its woes have been made worse by the misguided pro-growth policies of former Prime Minister Liz Truss.

IMF chief economist Pierre-Olivier Gourinchas highlighted the stability of China's post-Covid reopening and the return of growth among developing countries, including China and India, as other reasons for optimism.

CBR governor Elvira Nabiullina can be given a lot of credit for her astute management of the macro-crisis caused by Russian President Vladimir Putin’s decision to invade Ukraine and the subsequent avalanche of sanctions.

Russia's economy has adapted faster than expected to the shocks of 2022. Central Bank analysts credit this to the stability of the banking system, rising prices for falling export volumes, redirection of exports towards Asia, an effective reshaping of logistics chains, and government support. Business activity in Russia has been recovering and demand has been supported by government spending.

However, the economic recovery in Russia is uneven and faces challenges such as a preference for saving, difficulties in maintaining imported equipment and staff shortages. A large percentage of Russian businesses have reported staffing problems, despite all-time low unemployment at around 3.8%, which could result in fierce competition for talent and inflationary risks.

The IMF forecasts contrasts dramatically with the latest CBR macroeconomic survey in February, where the polled professional economists forecast a collective 2.9% decline for this year.

The Russian Economics Ministry plans to revise its macroeconomic forecast for 2023 in March-April, as specified in regulations, and it does not see any point in responding to immediate fluctuations in oil prices. The Central Bank will update its forecast in February.

Analysts polled by the Central Bank in a monthly survey conducted on January 27-31 expect Russia's GDP to shrink by 1.5% in 2023, though in December they forecasted a contraction of 2.4%. The CBR itself says the contraction in 2023 will be in the range of 1-4%, although Nabiullina said in January that there was a good chance that the result will come in at the more optimistic end of the range. 

First Deputy Prime Minister Andrei Belousov said at the end of December that the situation in the Russian economy will be "far easier" in 2023 that it was in 2022 and that GDP growth might be in the range of "about zero" to minus 1%.

The main findings from the CBR survey include:

Inflation: In the February survey, the median forecast of the inflation for 2023 rose by 0.2 pp to 6.0%. Analysts still expect inflation to return to near 4% in 2024 and remain within the target of the Bank of Russia thereafter. (chart)

Key rate: Analysts expect a higher key rate path in 2023-2024 compared to the December survey. Forecasts increased by 0.2 pp to 7.5% per annum and 6.8% per annum respectively. For 2025, the consensus forecast for the average key rate is 6.0% per annum. At the same time, the median estimate of the neutral key rate changed by 0.5 pp to 6.0% per annum. (chart)

GDP: Analysts improved the GDP estimate for 2022 from -2.9% to
-2.5%. The forecast for 2023 also improved markedly from -2.4% to -1.5%. Analysts have lowered the growth forecast for the Russian economy for 2024 by 0.3 pp to +1.2% and left the forecast for 2025 unchanged (+1.5%). According to analysts, the change in GDP in 2025 by 2021 will be -1.4% (-2.4% in the December survey). The estimate of the long-term GDP growth rate is unchanged at 1.5%. (chart)

Unemployment rate: no significant change. According to the median forecast, analysts expect a smooth decline in the unemployment rate from 4.3% in 2023 to 4.0% in 2025. (chart)

Nominal wages: The median growth estimate for 2022 increased by 0.5 pp to 12.4%. By contrast, the growth forecast for 2023 decreased by 0.5 pp to 7.0. Forecasts for subsequent years were raised slightly to 6.8% (+0.3 pp) and 6.0% (+0.1 pp) respectively. (chart)

Exports of goods and services: the forecast for 2023 is almost unchanged. Expectations for 2024-2025 are again markedly revised upward (2024: $500bn (+25bn compared to the December survey), 2025: $502bn (+$45bn compared to the December survey). Thus, according to analysts, the value of exports in 2025 will be by 8.7% lower than in 2021 (in the December survey – by 17% lower). (chart)

 

Imports of goods and services: Analysts also raised their import value forecasts for 2023-2025 compared to the December survey. Imports are expected to be $360bn (+$10bn) in 2023, $374bn (+$9bn) in 2024. Forecasts for 2025 rose to $390bn (+$15bn) and exceeded the 2021 level (by 2.6%) for the first time since the surveys had started (since June 2022). (chart)

USD/RUB exchange rate: Analysts anticipate a slightly weaker ruble compared to the December survey over the entire forecast horizon with a gradual weakening trend. Analysts’ forecast for 2023 – 72.0 rubles per dollar; for 2024 – RUB73.8 per dollar; for 2025 – RUB75.6 per dollar. (chart)