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The Russian economy will move back to growth in 2024-25, analysts from Russia’s leading financial institutions have stated in interviews conducted by Izvestia.

This compares with analysis given by Western media which tends to play up the Russian economic problems created by sanctions.

Interviewed were Daniil Nametkin, head of the Center for Investment Analysis and Macroeconomic Research of the Center for Strategic Research in Russia, Olga Belenkaya, head of the macroeconomic analysis department of FG Finam, Denis Popov, PSB bank’s chief analyst, Nikolai Kondrashov, a researcher at the Development Center Institute at the National Research University Higher School of Economics. Their opinions are discussed as follows:

Russian GDP retraction & recovery 2022-25

In their opinion, in 2022 we can expect a reduction in GDP by 6-11%, in 2023 it will not be so serious, and the country will return to pre-crisis levels of production by 2030. The most affected sectors are the automotive industry, aviation, engineering, the financial sector and IT. Drivers of recovery may be the oil and gas sector and fertilizer producers .

The decline in Russia’s GDP in 2022-2023 will occur due to unprecedented Western sanctions and serious restrictions on foreign economic activity, with the bans of Western countries on the purchase of Russian products exerting the greatest pressure. In addition, industries that cannot function without imports suffer. The logistics chains for exporting Russian products have also been disrupted. According to these estimates, Russia’s 2022 GDP will fall by 6.7% to 9.2%, however, if restrictions on oil and gas exports from the Russian Federation are aggravated, the decline could be 11.3%

2023 will offer either be zero growth signalling a bottoming out, or moderate growth at about 1.5%. If the latter growth rate is maintained, the overall recession can be overcome by at the earliest estimate by 2025 and latest by 2030.

Inflation

The current rate of economic growth is of great importance to the inflation rate, which at the end of 2022 will be from 20 to 25%. According to overall assumptions, the level and dynamics of inflation will decrease due to the emergence of replacement products, building new supply chains, reducing unreasonable consumer demand, increasing savings activity , increasing budget spending, preferential lending programs and the ruble exchange rate.

Rising prices will help limit the recovery of the ruble to pre-crisis levels, the high key rate of the Bank of Russia and the decline in consumer demand. However, clear signals are already being observed that a sharp slowdown may follow a sharp surge in prices.

Russian Industries To Watch For Retraction & Growth

Under the current conditions, it is difficult to single out any specific “culprits” for the decline in GDP and rising inflation as the problem is widespread. The most affected sectors are the automotive industry, aviation, mechanical engineering, and the financial sector, IT may also face serious problems , as it is experiencing a significant outflow of professional personnel as digital nomads who can work externally from Russia. The most favorable conditions are for food retail, fertilizer production and non-ferrous metallurgy .

In the production of fertilizers, then Russia is one of the major players in the market. At the end of March, the United States included fertilizer these products in the list of vital global commodities meaning sanctions did not extend to these items. This in turn means an increase in export earnings of Russian companies in the fertilizer industry can be expected. The second category includes niches that have been vacated after the suspension of the activities of many foreign companies in Russia, this opens a window of opportunity for Russian small entrepreneurs, especially in the areas of clothing, furniture, and interior design.

Russian Import Substitution

Import substitution is now starting to have an impact to replace previous Western imports. With increased (pent up) domestic supply, prices for building materials and medicines are already falling back, and this process will gradually expand to other commodity groups.

Food prices have also risen, and is being addressed for individual commodity groups such as sugar, eggs, pork, and so on, with supplies being sourced from other markets in Central and East Asia, and especially those countries – such as Vietnam – that have trade agreements with Russia. However, this requires sustainable solutions, and is connected with filling the domestic market with supply and ensuring competition to keep prices at reasonable levels.

Russian Energy Export Substitution

Russia’s export of oil and gas is also be relatively protected due to the dependence of the economies of other countries on them. India for example is negotiating to purchase significant volumes of discounted oil.

At present, it is difficult to be precise about Russia’s coming economic and trade performance, as forecasts will change depending on the adjustment of sanctions sentiment. The Russian government is already providing support to various sectors of the economy and introducing retaliatory restrictions on the actions of Western countries . Such measures include a reduction in the key rate, a reduction in the preferential mortgage rate, additional subsidies and subsidies to affected industries, and support for small and medium-sized businesses.