The Russian economy’s overheating has officially peaked and growth will slow from here as the non-monetary policy methods adopted at the start of this month start to take effect, according to the latest issue of the Central Bank of Russia (CBR)’s monthly new letter Talking Trends.

The central bank has been fighting sticky inflation since the second quarter last year without much luck, but in July changed tactics to stamp on economic growth by restricting access to credits that that have been fuelling inflation using administrative tools. The first salvo was to end the generous mortgage subsidy programme and more recently consumer credits, subsidised loans to small- and medium-sized enterprises (SMEs) and state-owned enterprises (SEOs) are going to be curtailed as the kinds of credits that are least sensitive to high interest rates. The CBR put through a whopping 200bp hike in July to bring the prime rate to 18% and could hike it again later this year as inflation pressures remain high.

While Russia is on course to grow by as much as 4% this, more than last year’s 3.6%, the CBR said in its recent pessimistic medium-term macroeconomic outlook that growth and consumption should fall dramatically in 2025 and remain subdued for the next two years. A hot summer in Moscow is coming to an end.

The CBR just released its September macroeconomic survey where it polls independent economist for their forecasts. The main results are reproduced below.

The ranges of analysts’ forecasts for the next years (see the shaded areas in the charts) have narrowed for most indicators and somewhat widened for nominal wages and imports. At the same time, the ranges for GDP growth, unemployment rate, $/RUB exchange rate, exports, imports, Brent oil price are widening by the end of the forecast period.

·       Inflation: Inflation forecast has been raised to 7.3% in 2024 (+0.8 pp compared to the July survey) and to 4.8% in 2025 (+0.3 pp). Analysts expect that inflation will return to the target in 2026 and remain at this level further on.

·       Key rate: Analysts have raised the average key rate forecast over the entire forecast horizon. The median forecast for 2024 is 17.1% per annum (+0.3 pp). It implies that the average key rate in September-December 2024 will amount to 19.0% per annum. Analysts forecast that the key rate will average 16.1% per annum (+1.1 pp) in 2025, 11.5% per annum (+0.9 pp) in 2026. The forecast for the end of the horizon (8.6% per annum) is somewhat higher than the median estimate of the neutral key rate, which rose to 8.0% per annum (+0.5 pp).

·       GDP: The forecast for 2024 has been raised by 0.4 pp to 3.6%. Analysts expect GDP to grow by 1.7-2.0% in 2025-2027. The median estimate of the long-term GDP growth rate has slightly increased to 1.8% (+0.2 pp). According to analysts, the GDP growth in 2027 to the 2021 level will total +12.0% (+11.1%, according to the July survey).

·       Unemployment rate: No changes to forecast. Analysts expect that unemployment will decline to 2.6% in 2024, increase to 2.8% in 2025 and then return to the 2023 level of 3.0%.

·       Nominal wages: Analysts have once again raised their forecast for nominal wage growth to 16.0% (+0.4 pp) in 2024, followed by a deceleration to 9.0% (+0.7 pp) in 2025, to 7.0% (+0.1 pp) in 2026 and to 6.6% (+0.2 pp) by the end of the forecast horizon. Calculations based on analysts’ forecasts of nominal wages and average CPI suggest that real wages will increase by 7.3% in 2024, by 3.0% in 2025, by 2.6% in 2026 and by 2.3% in 2027. Accordingly, by the end of the forecast horizon, real wages will be 26.0% higher than in 2021 (25.8% higher, according to the July survey).

·       Consolidated budget balance: Analysts expect a consolidated budget deficit of 1.3% of GDP in 2024, followed by a decline to 1.0% of GDP in 2025, to 0.7% of GDP in 2026 and to 0.6% by the end of the forecast horizon.

·       Exports of goods and services: Analysts have barely changed their forecast for 2024-2025 and somewhat raised their estimates for 2026-2027: $470bn (-$1bn) in 2024, $478bn (+$1bn) in 2025, $486bn (+$6bn) in 2026. The estimate for 2027 is $498bn (+$7bn), which is 9% ($52bn) lower than exports in 2021.

·       Imports of goods and services: Forecasts have decreased for 2024-2025 and have not changed significantly for the following years: $369bn (-$9bn) in 2024, $385bn (-$4bn) in 2025, $397bn (-$1bn) for 2026. The estimate for the end of the forecast horizon is $409bn (+$2bn), which is 8% ($29bn) higher than imports in 2021.

·       $/RUB exchange rate: Analysts’ forecast for 2024 is RUB90.4 per dollar (it implies that the average exchange rate in September-December 2024 will amount to RUB91.0 per dollar), RUB94.4 per dollar for 2025, RUB96.4 per dollar for 2026 and RUB98.9 per dollar for 2027 (the ruble is 0.6-0.8% stronger compared to the July survey).

·       Brent oil price: The forecast has barely changed. According to analysts’ expectations, the average Brent oil price will total $82 per barrel in 2024 (it implies that the average price in September-December 2024 will amount to $80 per barrel). The price will then decrease to $80 per barrel in 2025 and to $75 per barrel in 2026-2027.