The Central Bank of Russia (CBR) has released its latest macroeconomic survey of professional economists’ forecasts and its own estimates on October 20.

The survey is the regulator’s best guess at where the economy is going, and is bolstered by polling a select group of leading independent economists' views.

“The ranges of analysts’ forecasts for most indicators have continued to narrow (see shaded areas in the charts). However, the ranges for nominal wages, the unemployment rate, the exchange rate, exports and imports remain wide over the entire forecast horizon,” the CBR said.

The latest outlook is relatively upbeat and continues the trend of improving outlook from the previous macroeconomic survey in September. At the start of the war economists were predicting an economic contraction of between 8% and 15%, but that has been constantly improved as the war wears on and the CBR is now predicting a contraction of 3.5%, but with the caveat it could be a slightly worse contraction of 4.2% in its more pessimistic scenario.

“Analysts have improved GDP forecast for 2022 from -4.2% to -3.5%, while lowering forecasts for 2023 from -1.8% to -2.1% and for 2024 from 1.7% to 1.5%,” the CBR said. “Median GDP growth expectations for 2024 are back to July values. The GDP forecast for 2025 was raised slightly by 0.1 pp to 1.7%. This means that, according to analysts, GDP in 2025 will be 2.5% lower than in 2021 (-2.8% in the September survey). The long-term GDP growth estimate is unchanged at 1.5%.”

The CBR errs on the side of caution, saying that the economy will also shrink by a milder -2.1% in 2023 but that the contraction could be even less at -1.8% in the second, less likely scenario.

Thereafter Russia will return to growth in 2024 and continue at between -1.5% and 1.7% thereafter. However, according to a recent note by Oxford Economics on the costs of the war, analyst Heli Simola argued that Russia’s long-term growth potential has been seriously hobbled by the extreme sanctions and limited to between -0.5% and 1% at best.

Prior to the war Russia’s growth potential was generally seen as capped at 2% after President Vladimir Putin diverted much of Russia’s fiscal surpluses into building his Fiscal Fortress. Russia should have been growing at something of the order of 5%-6% had these surpluses been channelled into capital investment, according to many economists.

The other points of note in the survey included the forecast that the monetary policy rate will be cut to 7.1% next year, falling to 6% by 2025; inflation will decline from 12.5% this year to 4% over the forecast period; exports will continue to decline from $598bn this year to $445bn in 2025, while imports will climb from $331bn this year to $370bn over the same period, leaving Russia with a healthy trade surplus; and the dollar/ruble exchange rate will weaken from RUB68.4 to the dollar this year to RUB75 in 2025. Unemployment is expected to remain close to its historic lows of around 4.5% throughout the forecast period.

The main findings from the CBR survey are below. The bands of uncertainty have tightened in almost all the forecasts since the September survey, although relating to the exchange rate and trade remain broad, reflecting the uncertainty concerning the severity of new sanctions going forwards.

Inflation: In the October survey, the median forecast of the inflation for 2022 decreased by 0.4 pp to 12.5%. Forecasts for next years have not changed significantly. Analysts expect inflation to slow to 6% in 2023, return to near 4% in 2024 and remain on the target of the CBR thereafter. Meanwhile, the forecast for 2024 is slightly increased (by 0.2 pp to 4.2%), remaining in the July-September range.

Key rate: Analysts expect a higher key rate path compared to the September survey. The median forecast for the average key rate for 2022 rose by 0.1 pp to 10.6% per annum. Forecasts for 2023-2025 rose by 0.3 pp to 7.1% per annum, 6.4% per annum and 6.0% per annum respectively. Meanwhile, the estimate of the neutral key rate decreased by 0.5 pp to 5.5% per annum.

Unemployment rate: Analysts expect the unemployment rate to decrease to 4.1% by the end of 2022 (-0.8 pp against the September survey) and to rise to 4.6% in 2023 (-0.3 pp). As in the September survey, analysts expect the unemployment rate to decline to 4.5% in 2024, and to 4.3% in 2025.

Nominal wages: The median forecast for 2022 increased by 0.2 pp to 10.6%. Forecasts for the next years have not changed significantly (7.0%, 6.4% (+0.1 pp) and 6.0% respectively).

Exports of goods and services: Expectations for 2022 markedly revised upwards to $598bn (+$32bn compared to the September survey). Forecasts for 2023-2025 have also been revised upwards to $487bn (+$7bn), $460bn (+$15bn) and $445bn (+$9bn) respectively. Thus, according to analysts’ forecasts, the value of exports in 2025 will be 19% lower than in 2021.

Imports of goods and services: Analysts have raised their import value forecasts for 2022-2025 compared to the September survey. Imports are expected to be $331bn (+$18bn) in 2022, $345bn (+$13bn) in 2023 and $353bn (+3bn) in 2024. The 2025 forecast is back to the July value and becomes closer to the 2021 level. It is raised by $17bn to $370bn (-2.6% over 2021).

$/RUB exchange rate: Analysts expect a stronger ruble over the entire forecast horizon compared to the September survey, with a gradual weakening trend. Analysts’ forecast for 2022 – RUB68.4 per dollar, for 2023 – RUB71.4 per dollar, for 2024 – RUB74.7 per dollar. The strongest revision is forecast for 2025 – RUB75.0 per dollar (in September – RUB79.7 per dollar).