Russia expects the economy to contract by 8.8% in 2022 in the base case scenario, or by 12.4% under a more conservative scenario, a document released by the Russian Economy Ministry showed on Wednesday, further evidence that sanctions pressures are casting a shadow.
The conservative outlook is in line with that of former Finance Minister Alexei Kudrin, who said earlier this month that the economy was on track to contract by more than 10% this year in its biggest drop in gross domestic product since 1994.
The document showed that the Russian Economy Ministry expects the economy to grow 1.3% in 2023, 4.6% in 2024 and 2.8% in 2025. In a conservative scenario, the economy is expected to contract by 1.1%. The extent of the damage to the economy this year is unclear due to uncertainty about potential new sanctions and trade issues, she said. The government is likely to revise the forecast several times this year.
The document showed that inflation, which has already risen to 17.62% as of April 15, is expected to accelerate to 22.6% this year, remaining well above the central bank's target of 4% in 2023.
The central bank raised interest rates to 20% from 9.5% in late February in an emergency move, which Governor Elvira Nabiullina said helped stabilize the ruble and combat rising inflation.
The bank's key interest rate was lowered to 17% on April 8 in another unscheduled move. Analysts polled by Reuters now expect interest rates to fall further by 200 basis points to 15% at the Bank's next rate-setting meeting on Friday.
Capital investment is set to decline by 25.4 to 31.8% after 7.7% growth in 2021, while real disposable income, a highly sensitive measure for Russia, especially with price increases afflicting living standards, may fall by 9.7% in 2022, according to the State Department.
The World Bank has forecast that Russia's GDP for 2022 will fall by 11.2% due to Western sanctions imposed on Russian banks, state-owned enterprises and other institutions.
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