![Russia raises inflation forecast and sees much weaker ruble - Ministry of Economy](https://i-invdn-com.investing.com/trkd-images/LYNXMPEJ8B0XW_L.jpg)
©Reuters. FILE PHOTO: Local resident Maria Komissarova, 29, selects food products at a supermarket in the Siberian town of Tara in the Omsk region, Russia, December 14, 2021. REUTERS/Alexey Malgavko/File Photo
By Darya Korsunskaya
(Reuters) – Russia has significantly raised its inflation forecasts for the next two years and expects a much weaker ruble exchange rate against the U.S. dollar, according to macroeconomic forecasts compiled by the Economy Ministry, as the costs of fighting of the war in Ukraine are rising.
President Vladimir Putin is girdling the $2.1 trillion economy for a long war and while Western hopes of sparking a quick Russian economic crisis proved misplaced, higher inflation and a weaker ruble could fuel calls for higher interest rates and tighter currency controls to prevent the outflow of capital. .
Rising prices are also a concern for the Kremlin as it prepares for closely monitored 2024 presidential elections, which Putin, Russia’s longest-serving leader since Josef Stalin, is certain to win if he runs.
The Ministry of Economic Affairs has increased its inflation forecast for 2023 from 5.3% to 7.5% in 2023, and also its forecast for 2024 from 4.0% to 4.5%, according to documents from the Ministry of Economic Affairs Matters that have been submitted to the government as a draft forecast.
The new inflation forecast means that Russia will not reach the central bank’s inflation target of 4% until 2025, and not in 2024 as planned by the bank.
The central bank in July saw inflation range between 5.0% and 6.5% in 2023, falling to 4% in 2024. However, bank officials warned last week that price increases required decisive monetary policy action and jeopardized the inflation target.
After the ruble crossed the 100 per US dollar mark last month before strengthening again, the Economy Ministry now forecasts a much weaker ruble.
The ministry raised its forecast for the average annual ruble rate to 85.2 rubles per US dollar in 2023, up from the April forecast of 76.5 rubles, and to 90.1 rubles per dollar in 2024, up from of the April forecast of 76.8 rubles. The average annual rate of the ruble will be 92.3 against the dollar in 2026, up from the April forecast of 78.8 rubles.
After public criticism from the Kremlin when the ruble fell below 100 per dollar in August, the central bank was forced to raise interest rates by 350 basis points to 12% on August 15. The ruble was trading around $95 to the dollar on August 15. Tuesday.
While the ruble and inflation are clearly concerns, the Economy Ministry has raised its growth forecasts for 2023 and 2024 but lowered them for 2025 and 2026, in line with analysts’ expectations that Russia faces limited long-term growth prospects .
It more than doubled its 2023 gross domestic product growth forecast to 2.8%, up from 1.2% in April, and raised its 2024 forecast to 2.0% from 2.0% in April, to 2.3%. Unemployment, currently at historic lows in Russia, will remain at 3.1% during this period, the ministry said, underscoring acute shortages in the labor market.
Putin, who has praised Russia’s resilience in the face of Western sanctions, on Tuesday praised the central bank for keeping inflation in check with double-digit interest rates and said there were no insurmountable challenges when it came to limiting the volatility of the ruble.
Prime Minister Mikhail Mishustin said last week that oil and gas revenues have recovered despite the West’s attempt to clamp down on the world’s largest natural resources producer with sanctions. He also pointed to strong production growth and good performance in the metallurgical and food industries, clothing, plastics and rubber sectors.
“Russian business continues to confidently adapt to external challenges,” he said.
Below are the main forecasts of the Ministry of Economic Affairs’ base scenario on which the Ministry of Finance will base its draft budget. Previous predictions are in parentheses.
2022 2023 2024 2025 2026
Really
price $/barrel 101.0 83.5 85.0 80.2 76.2
(80.7) (75.7) (71.9) (70.6)
Rubles per US dollar, 67.5 85.2 90.1(76 91.1(77 92.3
average annual (76.5) .8) .6) (78.8)
Exports of goods, billion 590.8 459.1 471.0(4 481.1(4 496.7
$(465.9) 84.0) 96.2) (505.1)
Imports of goods, billion 276.7 313.8(3 319.7(3 326.8(3 335.5)
$13.8) 32.8) 47.4) (362.7)
Trade balance, billion $314.1 145.3(1 151.3(1 154.3(1 161.2
52.1) 51.2) 48.7) (142.5)
Current account balance, 236.1 74.4 80.7 77.8(73 80.8
billion $ (86.8) (81.0) .6) (63.6)
GDP growth % yoy -2.1 2.8(1.2 2.3(2.0 2.3(2.6 2.2)
) ) ) (2.8)
Industrial production, 0.6 3.6 2.6 2.2 2.3
growth % yoy (0.2) (2.5) (2.9) (3.0)
Inflation, % to December 11.9 7.5(5.3 4.5(4.0 4.0(4.0 4.0)
) ) (4.0)
Investments in fixed 4.6 6.0(0.5 2.3(3.2 3.0(3.7 3.0)
assets, % yoy ) ) ) (4.5)
Retail turnover, % -6.5 5.8(5.3 3.6(3.5 3.4(3.5 3.5)
yoy ) ) ) (3.6)
Real wages, % yoy 0.3 6.2(5.4 2.5(2.8 2.6(2.8 2.3)
) ) ) (2.5)
Real disposable income -1.0 4.3(3.4 2.7(2.6 2.6(2.6 2.6)
of population, % yoy ) ) ) (2.7)
Unemployment, % 3.9 3.1(3.5 3.1(3.5 3.1(3.5 3.1)
) ) ) (3.5)