Russian economy faces additional shock: risk factors named

We discussed this with Anton Tabakh, Managing Director for Macroeconomic Analysis and Forecasting at Expert RA, who the day before prepared and presented two scenarios for the development of events – a basic and an alternative one. The basic one – “reasonable sufficiency” – assumes that in 2025 the process of economic slowdown will be manageable with inflation decreasing to 6.5–7% by the end of the year, the key rate will drop to 18–19% by December, and GDP will grow by 1.5% (in 2026 – by 2.2%).

The alternative scenario - "additional shock" - implies near-zero economic growth dynamics. At the same time, the Central Bank will keep the key rate at 21% until the end of the year. The main prerequisites are the acceleration of inflation due to the strengthening of the "credit impulse", an increase in government spending, as well as inflation expectations of the population and business. If the shock scenario is realized, industries that are not a priority for the budget will face a decline.

MK spoke with their author, economist Anton Tabakh, about the presented scenarios and the likelihood of their implementation.

"Inflation is at a standstill"

- According to the Central Bank's medium-term forecast, the Russian economy is moving along a "soft landing" trajectory without sharp fluctuations. To what extent is the "reasonable sufficiency" scenario outlined in your macroeconomic forecast close to it?

— It is the same scenario, with the only difference being that, in my estimation, the economy will slow down a little faster. As for inflation, I think the Central Bank will soon shift the corridor towards my forecast figures: first to 6.5–7.5%, and then to 6–7%.

- In your opinion, the probability of the baseline scenario becoming reality has increased sharply over the last three months. Why exactly over this period?

- Because the ruble has strengthened considerably, and since December the economy has been showing signs of a downturn. First of all, we are talking about weakening consumer demand, a decline in the "credit impulse". But inflation is still at a standstill - in April, inflation expectations went up, although they had been declining since the beginning of the year. At the same time, let me remind you: "one snowflake is not snow"; indicators for one month do not indicate a trend reversal. Accordingly, the Central Bank has no reason to change anything in monetary policy now. It can wait quite calmly, which is what it is doing.

- Under what conditions could the alternative “additional shock” scenario come true?

- If inflation expectations grow for several months in a row, plus, for example, the ruble starts to weaken, some negative developments occur on the external perimeter, all this will certainly increase the probability of a shock. It is not very high now, but the scenario, as they say, is on the table. The dynamics of inflation expectations is important, in April the indicator moved up a little, but, I repeat, the Central Bank is not holding a pause for nothing.

"Everything came together at one point"

- According to your assessment, the strengthening of the ruble in 2025 is associated with technical rather than fundamental factors. In particular, with the closure of residual positions on the Moscow Exchange due to sanctions. But many analysts cite the trade balance surplus, which amounted to $32.5 billion in the first quarter, as the main reason.

- What role does this factor play?

- We almost always have a trade surplus. The ruble exchange rate began to strengthen for several reasons. At the end of last year, there were quite good prices for Russian export goods, and accordingly, export payments began to increase. They always come with a certain lag. And, conversely, demand for imports decreased, since consumers behave quite restrainedly. Furthermore, high interest rates contributed to the strengthening of the national currency. Technical factors also played a role (in particular, the expiration of some licenses to close foreign exchange positions), and, perhaps, excessive optimism due to geopolitics. All this came together at one point. Let me remind you that the ruble was strong both at the beginning of 2024 and in the first months of 2023. And then some changes began to occur, and in September-October the ruble flew down. That's how life works.

- Can what is happening be compared with the events of the summer of 2022, when the dollar cost about 55 rubles?

- No, such a comparison is incorrect. Everything was going to pieces then; the system, the markets were in turmoil, and the financial authorities were trying to calm them down somehow. The strengthening of the ruble was mainly due to emergency, strict measures to control capital movements, to the closure of various types of currency transactions, and to the collapse of imports. Today we have an established system, and changes in the currency market are largely seasonal in nature.

"Long braking distance"

- What awaits the course in the coming months?

- All other things being equal, if there is no significant improvement on the external perimeter, if oil prices do not move up, then we will see a weaker ruble. The scale and pace of this weakening is a rather delicate matter. With the current price of Urals oil at around $60 per barrel, the rate of 82 rubles per dollar looks excessively strong. It is clear that at some point the Central Bank will begin to lower the rate. Accordingly, the factors that contributed to the strengthening of the Russian currency will henceforth move it towards weakening. According to my forecasts, the average annual dollar exchange rate will be around 96 rubles, which is slightly higher than last year's figure of 92.5 rubles.

- Can we say that inflation is losing its former intensity?

- Yes, it is. Inflation is, in a sense, a rearview mirror. We look into it and see what was happening in the economy some time ago. But we need to look to the future. Accordingly, the general price dynamics are already reflecting the stronger ruble exchange rate, the slowdown in the economy, and the slowdown in wage growth. It will not be possible to reach the target of 4% in 2025, but the inflation situation is clearly becoming less tense. This is the very long braking distance that Elvira Nabiullina, the head of the Bank of Russia, spoke about about six months ago. Today we are seeing it in all its glory.

- How do you assess the situation with the budget deficit, which in the first quarter amounted to about 2.2 trillion rubles, or 1% of GDP?

- Technically, it is absolutely manageable, the budget is balanced quite tightly, all the necessary prepayments have been made, nothing looks very suspicious. Large expenditure figures should not be frightening. The main risks for the budget now are cheap oil and an overly strong ruble. By the end of the year, the deficit, even at current prices, will not be half a percent of GDP, as planned by the Ministry of Finance, but somewhere around one and a half. But no one will be very hurt by this, given the low level of public debt. In general, quoting Mister Twister, "you are not in Chicago, my dear."

- You call construction or development the main problematic sectors holding back the development of the Russian economy. Why?

- These sectors are the most sensitive to interest rates and the decline in economic activity. This has always been the case, under any social system. Since we have high interest rates now and the economy is cooling, these sectors are experiencing great difficulties.

"Yesterday was early, tomorrow will be late"

- In March, the Central Bank noted "signs of easing tensions in the labor market." However, the regulator's April survey (12.3 thousand enterprises took part in it) showed that the availability of personnel in the first quarter was again close to the minimum in the entire history of observations. Enterprises named the shortage of personnel as the second most important factor after the growth of costs, limiting their work. How would you comment on this?

- The problem of personnel shortage will be with us for a long time. But its severity has decreased compared to the second and third quarters of last year, when salaries were growing at a breakneck pace and finding employees was completely unrealistic. There are indirect signs that the situation is somewhat easing. Enterprises complain about medium-term difficulties, and the regulator has a retrospective approach: it sees that, in general, over a fairly long period of time, the personnel shortage has become less pronounced. Again, due to the slowdown in economic activity.

- How would you define the main risks for the Russian economy in 2025?

- "Yesterday was too early, but tomorrow will be too late," said Lenin before storming the Winter Palace. The Central Bank must begin to lower the rate in time, since otherwise there is a risk of driving the economy into stagflation, into a recession practically out of thin air. More precisely, those industries that are not dependent on direct budget financing. This is the main challenge. Probably, it would be possible to begin easing the monetary policy now, but the Central Bank is afraid of making a mistake. Plus, there is the factor of the global tariff war, which can greatly affect the export and raw materials markets, including, of course, the Russian one. Lower energy prices and high interest rates are the two main risks. In general, our weather is as predicted, but we should not relax: in addition to global problems, there are risks that can be created with your own hands. This applies not so much to the Central Bank (it clearly justifies all its decisions), but to a number of other departments, whose actions sometimes raise questions.

- Should the period of validity of the rule on the mandatory sale of foreign currency proceeds be extended?

- In principle, this rule is not needed at the moment. If it is needed, it will be reintroduced in a matter of days. The question is, what is preferable right now: to swear allegiance to the free market or to demonstrate that the state is vigilant? In fact, the result is the same.

- What does the “Trump factor” mean for the Russian economy?

- The direct impact is insignificant: our trade turnover with America is not very large, and if we talk about Russia's foreign trade as a whole, some sectors are under severe sanctions, while others, on the contrary, have been removed from them. But the indirect effects can be quite serious, since the level of uncertainty in the global economy is increasing. Accordingly, demand and prices for raw materials are falling, investment activity is decreasing in China and other countries that are the largest trade and economic partners of the Russian Federation. As for the expectations of Russian markets regarding hypothetical sanctions relief, we must understand that the unfreezing process will be long, difficult and very differentiated by economic sectors.