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The Ministry of Economic Development (MED) of the Russian Federation has prepared an updated forecast for the socio-economic development of the Russian Federation until 2025. The ministry has improved the forecast for key indicators for 2022, follows from the main parameters included in the draft macro-forecast (available from TASS).

A federal official familiar with the course of the discussion of the document told reporters that the base scenario of the forecast represents a realistic scenario for the development of the Russian economy in the next three years. "This forecast is realistic, it does not exaggerate too much, but it is not overly optimistic either," the official said.

He clarified that the current version of the project was agreed by the Ministry of Economic Development with the Ministry of Finance and the Ministry of Energy and submitted to the budget commission of the government.

The Ministry of Economic Development has improved the forecast for inflation growth in the Russian Federation for the current year to 13.4% from 17.6% previously forecast. According to the draft forecast, inflation will slow down significantly already in 2023, amounting to 5.5%. In 2024, the consumer price index is expected to grow by 4.2%, in 2025 - by 4%. An official familiar with the course of the discussion noted that the document provides for the end of deflation and "very moderate inflation" by the end of this year.

"According to last week's estimates, it is clear that deflation is only due to fruits and vegetables, the rest of the components have already gone into plus," the official explained. He also said that macroeconomic indicators indicate that the lower point of falling consumer demand in the Russian Federation was passed in the second quarter of this year, then a gradual recovery is expected.

The Ministry of Economic Development also improved the forecast for a decline in Russia's GDP in 2022 to 4.2% from 7.8% forecast in May this year. The draft macro-forecast includes a decline in Russia's GDP by the end of the year to 144.9 trillion rubles. In 2023, a decline of 2.7% is expected. At the same time, the recovery of the Russian economy will begin in 2024 (+3.7%), which will continue in 2025 (+2.6%), the document says.

"We managed to avoid a sharp recession in the economy - what many analysts predicted in March, a sharp collapse, a kind of" floundering at the bottom. "Our trajectory is much smoother, which allows the economy to adapt to the ongoing changes. At the same time, next year is also expected some decline. This is due to both objective factors and the statistical effect - we remember that the first quarter of this year was very high for all indicators," the federal official explained.

According to him, the lowest point of the recession of the Russian economy will be at the end of the first - the beginning of the second quarter of 2023, and it will be possible to achieve the pre-crisis level in 2025.

The average annual exchange rate of the dollar against the ruble, according to analysts of the Ministry of Economic Development, also demonstrates a more stable dynamics this year than expected in May. According to the draft forecast, the average annual dollar exchange rate in 2022 will be 68.1 rubles per dollar (80.1 rubles in the May forecast). In 2023, the Ministry of Economic Development expects an exchange rate of 69.2 rubles per dollar, in 2024 - 72.9 rubles per dollar, in 2025 - 74.8 rubles per dollar.

A federal official told reporters that in the current conditions, the calculation of the exchange rate has become somewhat more complicated. "Previously, the exchange rate was a derivative, it was considered a direct account. Now the formation of the ruble exchange rate is a somewhat more complicated process. The main factor [calculating the ruble exchange rate] is the current account balance," he explained.

According to the draft macro forecast, the current account surplus in 2022 will be a record $239.8 billion. In 2023, it is projected to decline to $114.9 billion, the decline will continue in the next two years ($95.5 billion in 2024, $82.4 billion in 2025 ).

The trade balance surplus of the Russian Federation this year is projected in the document at the level of $299.6 billion due to the growth of exports and a decrease in imports. At the same time, in 2024-2025, the surplus is expected to decrease below the level of 2021. Thus, in 2022, the Ministry of Economic Development predicts an increase in exports to $585.3 billion ($493.8 billion in 2021) while imports decrease to $285.7 billion ($304 billion). At the same time, a surplus of $190.8 billion is expected in 2023 due to a decrease in exports and an increase in imports ($505.4 billion and $314.5 billion, respectively). In the next two years, the macro forecast assumes a slight decline in exports with a more dynamic recovery in imports. Thus, according to the estimates announced in the draft document, the trade surplus in 2024 will amount to $169.2 billion, in 2025 - $153.6 billion.

"In the first half of the year, we had an extremely high trade balance. A gradual reduction in the trade balance is expected both due to the restoration of imports and due to a certain decrease in exports due to the need to reorient export flows to new directions and certain losses associated with such redirection," explained a federal official familiar with the discussion of the macro forecast.

He added that the recovery of consumer imports is going faster today than in the segment of investment and intermediate imports. "Logistics for intermediate and investment is objectively more difficult than for consumer. Therefore, such outstripping growth in consumer growth is understandable and explainable," he said.

The decline in investment activity in the updated version of the macro forecast also seems to be less dramatic than in May. The MED expects a decline in investment in fixed capital of the Russian Federation this year at the level of 13.4% (17.6% in the May forecast). At the same time, the forecast for 2023 was revised for the worse: a decline of 4.9% is expected instead of an increase of 0.3% in the previous version of the forecast. In 2024-2025, investments are projected to grow by 7% and 3.8%, respectively.

A federal official explained to reporters that the decline in investment has not yet ended. “In terms of investments, we believe that the recession has not yet passed. We had extremely high investment activity in the first quarter of this year. There is no data for the second quarter yet, we believe that the recession has already started. <…> We believe that the investment recession will shifted to the beginning of next year," the official said. He noted that the investment downturn will be more significant than the consumer downturn, in particular due to sanctions restrictions.

The Ministry of Economic Development of the Russian Federation also improved the forecast for retail trade turnover in Russia until 2025. At the end of 2022, a decrease of 6.6% is expected against 8.7% in the May forecast. In the next four years, the Ministry of Economic Development expects an increase in retail turnover. Thus, in 2023, an increase of 2% is predicted, in 2024 - by 5.6%, in 2025 - by 2.4%.

The draft document also involves adjusting the forecast indicators for the volume of paid services to the population. According to the results of the current year, they will decrease by 1.5% instead of 7.9% announced in May, follows from the document. In 2023-2025, growth is expected in the range of 1.3-2.8%.

At the end of 2022, the MED expects an average annual unemployment of 4.8% against 6.7% in the May forecast. The forecast for 2023-2024 is also improved: an average annual unemployment of 5.2% is expected next year, and 4.6% in 2024. The forecast for 2025 is left unchanged (4.5%). According to a federal official familiar with the discussion of macroeconomic forecasts, the highest unemployment rates are expected at the end of this year or the beginning of next year. At the same time, by the end of 2023, unemployment, according to him, will reach “a normal level, perhaps not as low as it is now.”

"What is the difference between the unemployment that is planned now and the unemployment that was during the covid period: now unemployment will have a pronounced structural and territorial character. For some period of time, most likely, we will have a situation of combining a shortage of labor in one industries and regions and unemployment in other industries and regions. This is due precisely to the restructuring of the economy," the official said.

The forecast correction in a more optimistic direction is connected with the understanding that the Russian economy turned out to be more resistant to crisis phenomena than many experts expected at the beginning of the year, Alexander Shirov, director of the INP RAS, believes. "Firstly, we do not have crisis phenomena throughout the year, but only starting from the second quarter. Secondly, the subsidizing abilities of Russian business, the population and the state turned out to be better than expected," Shirov told TASS.

The expert stressed that the crisis phenomena in the Russian economy persist. According to him, this explains the deterioration of a number of forecast indicators for 2023.

In addition, Shirov drew attention to the fact that next year the statistical data for the first quarter will be significantly affected by the high base of the first quarter of the current year. "The high base of comparison will put pressure on the figures for the first half of next year. There will be a recession, and economic recovery, apparently, will begin actively from the second half of next year," Shirov said.