Russian macro: In search of a new normal
In 9M24 the Russian economy continued to expand, albeit with some deceleration in recent months. However, in 2024 in total it may grow slightly faster amid a low base in 1Q23. In the currently evolved geopolitical reality, the Russian government has massively increased budgetary spending, which has become one of the pillars of the newly emerged growth model. In recent months, for instance, monthly federal budgetary expenditures almost doubled compared to monthly 1Q21 expenditures. One can see enormous spikes in spending every December as budgetary amendments on an unprecedented scale become the new normal.
Macroeconomic policy has changed considerably—instead of saving money in the National Wealth Fund in line with the previously fashionable fiscal rule, these days, spending has become a top priority for the government. One can see that not only have expenditures grown steadily in recent years—revenues have climbed, as well.
We don’t expect much policy change in 2025. Currently, the government is targeting federal budget revenues and expenditures at R40.3 trln and R41.5 trillion, respectively, which is not that high compared to this year (especially in the case of expenditures, which rose after several amendments to over R39 trln). This implies that the budget deficit will be lower than this year. However, we expect traditional amendments to come next year as well, so that expenditures climb to the extent that the 2025 budget deficit stays about the same as this year. Indeed, if, amid persistently high inflation, revenues again exceed the target, the expenditure side won’t stay unamended. Permanently changing budgetary targets are one of the reasons why macroeconomic forecasting beyond 2025 is complicated and, maybe, useless.
We expect the balance of payments to remain stable next year as well, and economic growth only slightly slower than this year. This means that the growth model and growth trajectory will remain relatively unchanged in 2023-2025—despite rising inflation and higher interest rates.
Now read on...
Register to sample a report