Credit By: Reuters
In a recent Reuters poll conducted with 15 analysts and economists, Russia’s economic growth trajectory for 2024 is expected to decelerate. The primary factor contributing to this anticipated slowdown is the persistence of double-digit interest rates maintained by the Bank of Russia throughout the year, aimed at curbing stubbornly high inflation.
2023 Performance Surpasses Expectations
The Russian economy is poised to outperform early expectations for 2023, with a forecasted growth of 3.1%. This marks a significant rebound from a contraction of 2.1% experienced in 2022. The positive momentum in 2023 has been attributed to substantial government spending, notably in increased military production.
Growth Projections for 2024
Despite the optimistic performance in 2023, the growth rate is anticipated to decelerate to 1.1% in 2024. High interest rates have emerged as a significant impediment to growth prospects. The Bank of Russia recently increased its key interest rate to 16%, signalling a commitment to taming inflation. While the central bank suggests the rate-hiking cycle is nearing completion, elevated borrowing costs are expected to persist for several quarters.
Impact of Prohibitive Interest Rates
The prohibitive nature of the current interest rates, with Sberbank’s CEO German Gref describing them as such, has led to a substantial reduction in both corporate and consumer lending. Gref foresees rates remaining above 10% at the end of the next year. Analysts participating in the Reuters poll project interest rates at 12% by the end of 2024.
Inflation and Its Role
Inflation, a critical concern for the Russian economy, is targeted by the central bank at 4%. The year 2023 is expected to conclude with inflation at 7.6%, gradually moderating to 5.4% by the end of 2024. President Vladimir Putin’s recent apology for soaring egg prices highlights the inflationary challenges faced by the country, particularly impacting the vulnerable segments of the population.
Rouble’s Weakness and Exchange Rate Predictions
The weakness of the Russian ruble has been a contributing factor to inflationary pressures. Analysts foresee limited prospects for the ruble to strengthen significantly in 2024, projecting it to trade at 100 to the dollar a year from now. This prediction reflects a slight weakening compared to the previous month’s poll, where the rouble traded close to 92 on a Friday.
Future Key Factors
The ability to lower the key interest rate is anticipated to materialize in the middle of the next year, aligning with the expected steady slowdown in inflation. However, economic challenges, including inflation and exchange rate dynamics, will continue to be critical factors as Russia heads into 2024, especially against the backdrop of President Putin’s re-election bid in March.
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