Sector

Sovereigns

Type

Forecast

Table 1. Base case1 scenario of the macroeconomic forecast from 2023 to 2025

INDICATOR

UoM

ACTUAL

ESTIMATE 21.03.2023

FORECAST

2020

2021

2022

2023

2024

2025

Key external environment

indicators

Urals crude oil price (annual average)

USD per barrel

41.6

69.0

80.2

62–65

65–75

65–75

Global GDP2

%, y-o-y

-3.3

5.8

2.8

1.3–1.8

2.0–2.5

2.0–2.7

US GDP

%, y-o-y

-2.8

5.9

2.1

0.2–1.0

0.7–1.7

0.9–2.1

China GDP

%, y-o-y

2.2

8.1

3.0

3.6–4.4

3.8–4.8

3.6–4.8

EU GDP

%, y-o-y

-5.6

5.4

3.5

-0.2–0.8

1.5–2.5

0.6–1.8

Production indicators

GDP (current prices)

RUB tln

107.7

135.3

151.5

157.2–160.4

166.5–171.5

173.6–182.5

GDP (fixed prices)

%, y-o-y

-2.7

5.6

-2.1

-1.5 – -1.0

0.8–1.8

0.4–1.6

Fixed investments

%, y-o-y

-0.1

8.6

4.6

-0.8–0.0

2.5–3.5

3.4–4.6

Industrial output index

%, y-o-y

-2.1

6.3

-0.6

-1.5 – -0.7

0.5–2.0

1.4–2.6

Retail turnover

RUB tln

33.9

39.5

42.5

45.9–46.8

49.4–50.9

52.1–54.7

Balance of payments indicators

Exports of goods and services

USD bln

380

544

621

475–494

468–496

471–505

Imports of goods and services

USD bln

304

378

309

322–336

365–388

378–405

Annual average USD exchange rate

RUB/USD

72.1

73.7

68.5

71.0–78.4

70.8–79.8

72.4–83.4

Annual average EUR exchange rate

RUB/EUR

82.4

79.8

72.5

76.6–84.7

77.2–87.0

79.7–91.7

Income and labor market

Average wage

RUB/month

51,344

57,244

64,191

69.2–72.0

74.7–79.4

80.1–85.9

Real disposable income

%, y-o-y

-2

3.2

-1.0

1.1–1.9

0.9–1.9

0.5–1.7

Unemployment (annual average)

% of EAP3

5.8

4.8

3.9

3.6–4.0

3.4–4.0

3.1–3.9

Financial market indicators and prices

Inflation (CPI)

%, Dec/Dec

4.9

8.4

11.9

6.3–6.7

4.7–5.3

3.9–4.7

Key interest rate (as of end of year)

%

4.3

8.5

7.5

7.3–7.7

6.7–7.3

6.6–7.4

Key interest rate (annual average)

%

5.1

5.7

10.5

7.3–7.7

6.9–7.5

6.6–7.4

5-year zero-coupon OFZ rate (as of end of year)

%

5.5

8.4

9.4

7.8–8.6

6.9–7.9

6.6–7.8

5-year zero-coupon OFZ rate (annual average)

%

5.6

7.0

9.7

7.5–8.3

7.1–8.1

6.8–8.0

Budget

Federal budget balance

% of GDP

-3.8

0.4

-2.2

-3.0 – -2.6

-2.2 – -1.6

-1.3 – -0.5



1 The ranges of future values of macroeconomic indicators are given; they should be viewed as the most probable under the unchanged assumptions of the base case scenario. Optimistic and pessimistic forecast scenarios under alternative assumptions are given in the Appendix.
2 Real growth rate according to the World Bank’s methodology
3 Economically active population

GDP GROWTH: ABOVE OR BELOW ZERO?

In its updated macroeconomic forecast for 2023–2025, ACRA continues to expect that in the next few years the process of structural transformation will be accompanied by higher interest rates, rising labor costs in real terms, and rather high budget deficits. Read about these and other transitional aspects of the Russian economy in ACRA’s forecast from December 1, 2022: Eight Questions about Russia’s Economy in 2023–2024.

The main quantitative change in our expectations is an upward revision of the GDP forecast for 2023 (Table 1). Despite the improvement of several key assumptions, including those related to external trade and the influence of budget expenditures, we continue to expect that real GDP will decline over the full year. At the same time, quarter-on-quarter growth (from Q2 to Q4) is possible.

Figure 1. Quarterly real GDP levels, 2021–2023 (2021 index = 1, seasonally adjusted)


Sources: Rosstat, ACRA

Key factors affecting the forecast of annual decline in real GDP:

1)  High base effect of Q1 2022. GDP from Q2 to Q4 of 2022 was 4–5% lower than in Q1 (seasonally adjusted, see Figure 1). The recovery is moving from this new level, while the 2023 annual growth figure compares all quarters of 2023 to all quarters of 2022. As a result, for example, achievement of 0% annual growth assumes that on average, business activity in 2023 must be 1.2–1.3% higher than in the second to fourth quarters of 2022.

2)  Falling production and refining in the oil and gas sector. According to Deputy Prime Minister Alexander Novak, Russia will reduce oil production by 5% in March 2023 and in the future will act according to the situation in the world market4. Gas production was cut earlier, at the end of 2022, including due to the shutdown of the Nord Stream pipelines. The total share of the oil and gas sector in Russia’s GDP is around 18%, therefore, each percentage point reduction in the sector’s business activity, other things being equal, adds about -0.2 percentage points to GDP. At the same time, it is worth noting that the reduction in export-oriented production is relatively more important for GDP, since it implies more transportation and trade services.

3)  Budget plans. The contribution of government spending to GDP in 2022 was very positive at around 0.5 percentage points. Furthermore, in 2022, federal budget expenditures grew by 12% in 2022 in real terms5. According to the current federal budget, expenditures are set to decline by 5% in nominal terms and by around 10% in real terms in 2023. The impact of these fluctuations on GDP is mitigated by the fact that about RUB 7 tln of spending in 2022 (around 23%) occurred in December and, in fact, relates to 2023, perhaps even more than to 2022.

The assessment of the full impact of fiscal stimulus must also include growth of quasi-expenditures and government lending (at least in terms of their impact on fixed capital investments) and the theoretical possibility of revising planned budget expenditures. Overall, we expect the government’s complete contribution to GDP growth to be slightly positive rather than significantly negative, but it is unlikely to be comparable its contribution in 2022.

4)  Bigger incentives for investment related to import substitution and changing logistics. As mutual trade and financial restrictions toughen, local businesses are receiving ‘protection’ from external competition and the opportunity to occupy vacant niches (at the least due to transaction costs), which, among other things, implies demand for changes to transport infrastructure and logistics. Despite that according to our estimates, gross fixed capital formation in real terms will be slightly lower in 2023 than it was last year, gross capital formation as a whole (including investments in reserves) will have an overall positive impact. Infrastructure investments and construction in the interests of industry will be decisive for the final result.

5)   Potential growth of consumption. The expectation of a slight increase in real disposable incomes of the population (+1.1–1.9%) due to both wages and social benefits makes real growth in private demand theoretically possible. If it is satisfied mainly by domestic production, contribution to GDP will be positive. This potential, if realized, will primarily affect the growth of consumption and production of food products and services for the population, and only in the last place — non-food products.


4 https://www.rbc.ru/economics/10/02/2023/63e5ff849a794782cff4ca73

5 Government spending in the system of national accounts (SNA), on the basis of which the contribution to GDP is calculated, and federal budget spending are not the same thing. Nevertheless, the dynamics of federal budget spending is a key factor determining the dynamics of government spending in the SNA.


Table 2. The forecast’s sensitivity to alternative assumptions (2023)

GDP components

Real growth of household consumption

Real growth of government consumption

Real growth of gross capital formation (investment + reserves)

Real growth of exports

Real growth of imports

Real growth of GDP

Inflation, annual average

Key rate, annual average

Inertial

1.8

-0.4

1.2

-1.5

12.0

-1.5

5.2

7.5

Export problems

1.0

0.0

0.9

-5.0

9.0

-2.5

6.4

8.1

Consumer boom

3.9

-0.3

2.5

-1.5

14.0

-0.5

7.0

8.3

The state beyond the fiscal rule

2.3

1.5

1.2

-1.5

11.0

-1.0

6.5

7.8

As follows from Table 2, even within a set of relatively realistic assumptions, forecasts for the coming year can vary quite significantly. In consensus polls, even for the current year, the typical spread of forecasts for GDP growth is about 1.5 percentage points around the median, while for inflation it is more than 1 percentage point.

The optimistic and pessimistic forecast scenarios under alternative assumptions are given in the Appendix.

SEVEN TRENDS THAT UNEVENLY AFFECT INDUSTRIES AND regions

Falling GDP, increased interest rates and other general economic trends somewhat obscure the fact that the structural changes in the economy inherently imply different responses from different economic segments to the changed conditions. Below we consider the obvious and not so obvious factors and processes that, in ACRA’s opinion, are changing the structure of the economy.

I. Mining and processing of natural resources is declining and changing sales markets

Rationale: ACRA expects that in 2023, physical production volumes in the oil and gas sector will decrease slightly (by 3–5% compared to 2022) due to more complicated export conditions. This is most relevant for oil refining, since it is difficult to substitute European export destinations because petroleum products are less homogeneous products in a more fragmented market than oil and gas. Gas production is declining mainly in the traditional fields of Western Siberia, as they are focused on pipeline exports to Europe, while eastern fields are being developed and will be developed more actively.

Industries: Mining, oil refining, lumber processing, wholesale trade.

Regions (+): Southern Siberia and the Far East.

Regions (-): Yamalo-Nenets Autonomous Okrug, where a significant share of exports went through Nord Stream; some of regions of the Volga, Western Siberia, and Karelia.

II. Non-oil and gas trade is changing logistics

Rationale: Last year, trade sanctions decreased the physical volume of direct trade with Europe by about 35% y-o-y (particularly, direct imports of goods to Russia fell by 45%). At the same time, the trade turnover of Europe with some of Russia’s neighbors increased by double figures in 2022. This indirectly confirms that, along with the change of trading partners, there are parallel imports. Thus, logistics, geography of demand for transport services, and infrastructure have changed and may continue to change.

Industries: Transport, retail trade, construction.

Regions (+): Southern border regions.

Regions (-): Western border regions.

III. A labor force shortage is expected

Rationale: The expected labor force shortage in Russia is a result of the combination of a negative natural increase in the working-age population and a decrease in the share of people in civilian specialties, an increase in the emigration of certain professions (to a lesser extent in 2023), and a projected decrease in potential immigration6. This leads to unequal wage growth (potentially higher in large cities) and increased population flow from small agglomerations to larger ones, as well as to new flows within the country.

Industries: Agriculture, retail trade, construction, transport, consumer goods industry.

Regions (+): Large urban agglomerations (Moscow and the Moscow Region, Saint Petersburg and the Leningrad Region, the largest agglomerations of the Volga and the Ural regions).

Regions (-): Small urban agglomerations and rural areas. ACRA notes more pronounced risks for regions with a significant share of labor-intensive industries (agriculture, services sector, etc.). These include, for example, the Tambov Region, the regions of the North Caucasus, the south of Russia and the Black Earth region, the Republic of Mordovia, the Orenburg Region, Altai and Altai Krai, and Kamchatka.

From the viewpoint of the shortage of skilled labor, all large non-capital cities will experience greater pressure, which means that additional risks arise in the Novosibirsk and Tomsk Regions, and others.

IV. Manufacturing chains are changing in the automotive industry

Rationale: The car manufacturing segment is generally associated with one of the longest and most extensive global production chains (at least among consumer goods). As a result of external trade restrictions, the sector faced very serious challenges — only one or two types of industrial activity in Russia fell in 2022 as much (by about two times y-o-y). Substitution processes in the industry include both the search for local components for home car brands and refocusing on the assembly of southeastern brands.

Industries: Automotive.

Regions (-): Regions in which large foreign enterprises manufacturing cars and components were concentrated experienced a significant decrease in output in this category. Some enterprises have announced or are expected to launch the assembly of other brands, but even in the case of the start of production of Chinese brands, a quick return to the level of 2021 is hardly possible. A number of regions (the Leningrad and Moscow Regions, Saint Petersburg, Moscow, the Republic of Tatarstan) have large automobile production facilities, as well as more diversified economies compared to other regions, so that the decline in the automotive industry has less economic impact on them.

V. Legacy mechanical engineering finds a new lease on life

Rationale: On the back of forced or natural import substitution, the demand for analogs of some imported components, raw materials and means of production has increased. In many cases, the only way to meet this demand in 2022 was to find idle capacities in manufacturers of incomplete analogs, and to adapt their own processes. According to ACRA’s estimates, the most significant increase in the workload in industrial production occurred in mechanical engineering and the defense sector. Regions with a significant share of the defense industry generally have shown no decline but instead a significant increase in the aggregate industrial production index.

Industries: Metal products, transport and other mechanical engineering, electrical engineering, electronics.

Regions (+): The Rostov, Kurgan, Sverdlovsk, and Bryansk Regions, Primorsky Krai, and a number of other regions where relevant enterprises, including the defense industry, are located.

VI. Concentrated investments and megaprojects are becoming a priority

Rationale: As a source of funds and a customer of investments, the government is increasing its role with the growth of public spending. The government’s share in financing investments in fixed assets in 2022, according to ACRA’s estimates, increased by 4 percentage points (3 percentage points directly and 1 percentage point through government-owned companies). Public investments are focused mainly on large, geographically concentrated projects that are easier to plan and control. Therefore, regions and industries with such projects have a relative advantage. Large projects already in progress remain a priority for corporations as well.

Industries: Infrastructure construction, transport.

Regions (+): “Europe — Western China” international transport corridor (the Orenburg, Samara, Nizhny Novgorod, and Vladimir Regions, the Republic of Bashkortostan, the Republic of Tatarstan), Amur Gas Processing Plant (the Amur Region), regions where the Power of Siberia 2 gas pipeline will run, etc.

VII. Verticalization of budgets is accelerating

Rationale: Structural changes in the economy, in which the government plays a major role, dictate a more intensive redistribution of budget funds. Redistribution is carried out through budget transfers and government-owned banks and corporations.

Industries: Finance, public services.

Regions (+): In 2022, the regions whose debt burdens are relatively high already benefited from this process, as the Russian Ministry of Finance refinanced a portion of their commercial debt with budget loans or provided new loans for infrastructure projects. These regions include the Nizhny Novgorod, Kemerovo and Moscow Regions, the Krasnodar and Khabarovsk Krais, and many other regions. Budget loans have very low interest rates and, theoretically, may be extended.

In the future, this redistribution may be positive largely for the eastern and southeastern regions of Russia where public investments are used to implement infrastructure projects.


6 The estimate is based on the model that includes the following factors: wealth gap, population aged 20–45, and the share of Russian-speaking population. Common migrant-exporting countries (Ukraine, Tajikistan, Kazakhstan, etc.) are at different stages of their demographic transition, however, the growth rates of population aged 20–45 are declining noticeably in all of these countries, while living standards and internal demand for labor are growing.


Appendix. Alternative scenarios

Table 3. Optimistic scenario of the macroeconomic forecast for 2023–2025

INDICATOR

UoM

ACTUAL

ESTIMATE 21.03.2023

FORECAST

2020

2021

2022

2023

2024

2025

Urals crude oil price (annual average)

USD/bbl.

41.6

69.0

80.2

7075

75–80

75–80

Global GDP[1]

%, y-o-y

-3.3

5.8

2.8

2.3–2.9

2.4–3.1

2.4–3.1

GDP (current prices)

RUB tln

107.7

135.3

151.5

163.0–166.3

168.7–173.8

176.2–185.3

GDP (fixed prices)

%, y-o-y

-2.7

5.6

-2.1

0.6–1.4

1.5–2.5

1.4–2.6

Industrial output index

%, y-o-y

-2.1

6.3

-0.6

0.3–1.0

2.0–3.0

1.9–3.1

Retail turnover

RUB tln

33.9

39.5

42.5

45.6–46.6

47.2–48.7

49.3–51.9

Exports of goods and services

USD bln

380

544

621

600–625

558–592

553–593

Imports of goods and services

USD bln

304

378

309

362–377

393–417

415–445

Annual average USD exchange rate

RUB/USD

72.1

73.7

68.5

65.6–72.5

66.7–75.3

67–77

Real disposable income

%, y-o-y

-2

3.2

-1.0

3.6–4.1

1.6–2.6

1.5–2.7

Inflation (CPI)

%, Dec/Dec

4.9

8.4

11.9

4.9–5.3

3.7–4.3

3.6–4.4

Key interest rate (annual average)

%

5.1

5.7

10.5

6.7–7.1

5.7–6.3

5.4–6.2

5-year zero-coupon OFZ rate (annual average)

%

5.6

7.0

9.7

6.8–7.6

6.1–7.1

5.9–7.1

Federal budget balance

% of GDP

-3.8

0.4

-2.2

-1.6 – -1.2

-1.7 – -1.1

-0.9 – -0.1



7 Real growth rate according to the World Bank’s methodology
Source: ACRA

Key assumptions:
— Oil production volume recovers within several months after the fall in March 2023. Real discount of exported oil against Brent is less than USD 25/bbl.
— The propensity to consume grows. Extra demand for goods and services is mainly met by local producers.
— Relatively fast recovery of investment imports. 

Table 4. Pessimistic scenario of the macroeconomic forecast for 2023–2025

INDICATOR

UoM

ACTUAL

ESTIMATE 21.03.2023

FORECAST

2020

2021

2022

2023

2024

2025

Urals crude oil price (annual average)

USD/bbl.

41.6

69.0

80.2

4247

48–55

49–59

Global GDP8

%, y-o-y

-3.3

5.8

2.8

-1.6 – -1.0

3.3–4.0

3.1–3.8

GDP (current prices)

RUB tln

107.7

135.3

151.5

147.9–150.9

168.8–173.9

177.6–186.7

GDP (fixed prices)

%, y-o-y

-2.7

5.6

-2.1

-3.2 – -2.4

2.0–3.0

0.4–1.4

Industrial output index

%, y-o-y

-2.1

6.3

-0.6

-3.4 – -2.6

-0.2–0.8

-0.3–0.9

Retail turnover

RUB tln

33.9

39.5

42.5

45.8–46.7

52.3–53.9

55.1–57.9

Exports of goods and services

USD bln

380

544

621

320–333

328–348

323–347

Imports of goods and services

USD bln

304

378

309

283–295

320–340

331–355

Annual average USD exchange rate

RUB/USD

72.1

73.7

68.5

76.0–84.0

81.9–92.3

84.5–97.3

Real disposable income

%, y-o-y

-2

3.2

-1.0

-0.5–0.3

2.1–3.1

0.5–1.7

Inflation (CPI)

%, Dec/Dec

4.9

8.4

11.9

7.9–8.3

5.7–6.3

4.6–5.4

Key interest rate (annual average)

%

5.1

5.7

10.5

9.3–9.7

7.7–8.3

6.6–7.4

5-year zero-coupon OFZ rate (annual average)

%

5.6

7.0

9.7

8.9–9.7

7.9–8.9

6.9–8.1

Federal budget balance

% of GDP

-3.8

0.4

-2.2

-5.2 – -4.5

-3.5 – -2.9

-2.5–1.7



8 Real growth rate according to the World Bank’s methodology

Key assumptions: 

— Several recessions in large economies. Global demand and prices for goods commonly exported by Russia fall. 
— Production volumes of oil and other natural resources do not recover: a decline of around 10% vs. 2022. 
— Propensity to consume does not grow. 
— Investment imports do not recover under the pressure of secondary sanctions and growing transaction costs.

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Analysts

Dmitry Kulikov
Director, Sovereign and Regional Ratings Group
+7 (495) 139 04 80, ext. 122
Elena Anisimova
Senior Director — Head of Sovereign and Regional Ratings Group
+7 (495) 139 04 86
Svetlana Panicheva
Head of External Communications
+7 (495) 139 04 80, ext. 169
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