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Outlook on certain Russian macroeconomic indicators upgraded in run-up to new budget cycle

The ministry will provide its final variant of the macroeconomic outlook through 2024 in August-September

MOSCOW, July 9. /TASS/. Russia’s Economic Development Ministry has revised a number of indicators of its outlook on the country’s social and economic development through 2024 in the run-up to a new budget cycle. Using the latest projections provided in April in drafting the new three-year budget would lead to tight budget policy with the necessity to reduce expenditures, whereas the Finance Ministry plans to normalize its budget policy starting 2022 and pursue it in accordance with fiscal rules, a representative of the Economic Development Ministry told reporters.

The ministry will provide its final variant of the macroeconomic outlook through 2024 in August-September. The revised parameters, adjusted on the basis of the results of five months of this year, have been submitted to regions, the ministry’s press service said. The deadline for submitting Russia’s draft budget for 2022-2024 to the State Duma (lower house) is September 15.

"The formation of the federal and regional budgets for three years is underway now, which is why it is very important to provide relevant macroeconomic guidelines to all participants of the budget process. Simply put, if we started the budget formation based on old projections now, we would get an extremely tight budget policy with the necessity to reduce expenditures and so on. That is why we initiated an interim adjustment of projections, the budget commission supported us," a representative of the Economic Development Ministry said. "Nevertheless, the projections are interim, we are far from answering all questions fully now as the statistics has not been released, some uncertainty remains, which is why the final outlook will be provided in late August or in early September as suggested earlier," he added.

Recovery better than expected

The Russian economy is recovering faster than expected, with its recovery potential not exhausted yet, the ministry noted. The economy is expected to return to the pre-crisis level as early as in July. "We currently have data for March, April and May in hand, we see that the economy is recovering faster than we expected <…> We expect the return to the pre-crisis level as early as this month <…> Our experts say that the potential of the economic recovery is not exhausted year," the ministry’s representative said.

The outlook on Russia’s GDP growth rates for 2021 has been upgraded to 3.8% compared with 2.9% expected in April, he said, adding that the outlook on economic growth rates for 2022-2024 remained unchanged at 3.2% in 2022 and 3% in 2023 and 2024. "The reasons of the upgrade of 2021 GDP growth outlook are clear - the improvement of the consumer and investment demand dynamics," the representative explained.

The forecast on retail trade growth has been improved for the whole period: to 6.9% from 5.1% for 2021, to 3% from 2.9% for 2022, to 2.9% from 2.8% for 2023-2024. The outlook on growth of paid services to households has also been upgraded to 14.3% from 11.3% for 2021, to 5.2% from 4.8% for 2022, and to 3.5% from 3% for 2023-2024.

Moreover, the Economic Development Ministry has upgraded its outlook on growth of investments for 2021 to 4.5% from 3.3% projected in April, leaving the forecast for the next three years unchanged. "The positive dynamics of fixed investment - we have growth by 2%, the current indicators for April-May also say that we see very strong investment results by the end of the second quarter," he said.

The ministry has not changed the outlook on growth of industrial production for this year, leaving it at 2%, whereas for future years the industrial production growth outlook has been upgraded to 3.6% from 3.4% expected in April for 2022, remained unchanged at 2.9% for 2023, and has gone slightly down to 2.7% from 2.8% for 2024.

Inflation ‘petering out’

Russia’s Economic Development Ministry has downgraded its outlook on inflation in the country for the end of 2021 to 5% from 4.3% expected in April, the representative of the ministry told reporters. Nevertheless, the ministry notes that the recent upsurge in inflation as of July 5, when annual inflation in Russia sped up to 6.6%, the highest level since 2016, was the last. "Inflation is starting to peter out, this is the last upsurge we register," he said.

Meanwhile, the ministry has not changed its inflation outlook of 4% for 2022-2024.

"Inflation currently stands above the built-in trajectory, there was a second peak in June. The international environment risks persist. Meaning we understand that there was a correction on June, with prices, particularly, of food, declining on global markets compared to the May level. Nevertheless, the current situation is unstable, which is why we see now that it will take more time for the situation on the global markets to normalize. There are also many one-time factors," he explained.

Real income particularly controlled

The Economic Development Ministry notes a slower than expected recovery of real disposable income in the first quarter of this year, which is why it leaves the outlook on its growth unchanged at 3% for 2021, whereas by August it will be updated. The outlook for future years has also remained in force at 2.4% for 2022 and 2.5% for 2023-2024.

"We left the outlook on real disposable income at 3% so far. We doubt the recovery of other household incomes, we see that they are recovering more slowly than expected, consequently, their recovery in the first quarter of 2021 is the parameter we will monitor particularly in August when we get the 2H figures," the ministry’s representative said.

The ministry has slightly upgraded its unemployment outlook for this year to 5.1% from 5.2% expected in April. "The unemployment level [in Russia] was 4.9% by the end of May, previously we expected a decline below 5% no earlier than in the autumn of 2021," he noted.

Ruble to strengthen following oil price

The ministry expects the national currency to strengthen to 72.8 rubles per dollar in 2021 with the price of the Urals crude oil standing at $65.9 per barrel. According to its representative, the ruble will strengthen to 70.2 rubles per dollar with the Urals price standing at $64.8 per barrel in 2022, to 71 rubles per dollar with the Urals price at $60.8 per barrel in 2023, and 72.8 rubles per dollar with the Urals price equaling $57.4 per barrel in 2024.

The ministry links the ruble’s strengthening with the growth of the oil price, nevertheless it plans to return to the issue in August. "A stronger ruble is surely connected with the oil price, though the issue on the foreign currency market remains the zone of our additional research. We will thoroughly monitor [it] again in August," the representative added.