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Russia unlikely to see late-2024 kind of growth in 2025 – Igor Nikolaev

Invest Foresight asked Igor Nikolaev, chief researcher at the Institute of Economics of the Russian Academy of Sciences, to comment on the economic highlights of 2024 as well as Russia’s outlook for 2025.

Igor Nikolaev, Chief Research Fellow of the Economics Institute at the Russian Academy of Sciences. Vladimir Trefilov / RIA Novosti

– If we approach the situation as a macroeconomist would do, we will need to focus on the performance of two core macroeconomic indicators, Russia’s gross domestic product (GDP) and inflation. In fact, their status as such is enshrined in the Budget Code.

In 2024, economic growth turned out to be higher than expected. In fact, it was quite significant. We don’t have the exact figures yet, but 3.5-4% is a very decent growth. Despite many factors, the economy still showed growth. However, we must make an important reservation: that growth also slowed down during the year. According to quarterly stats, the economy grew as fast as 5.4% in the first quarter of 2024, then slowed to 4.1% is the second quarter, 3.1% in the third quarter, and was less than 3% in the fourth quarter. That is, we did have growth, but its pace was declining.

Now, inflation, the second indicator. Here, the situation is the opposite. Without any reservations, there was nothing good as inflation accelerated, despite the increase in the key rate from July 2024 to the final value of 21%. And at the end of the year, it will be around 10%. When the rate started to increase last December, inflation was 7.4%. At the same time, the forecast for inflation with which we entered 2024 was 4.5%. That is, the growth of the consumer price index exceeded the forecast by more than 100%. The situation, let’s say, is unsatisfactory.

Yes, of course, there are other aspects that marked this year. For example, the fact that the Russian stock market was falling. It remains at multi-month lows both at the RTS stock exchange and at the Moscow Exchange. The ruble confidently passed the bar of 100 rubles per dollar and will not roll back, and this is how 2024 will also be remembered. This psychologically important milestone is now a passed stage.

If we talk about 2025, we should expect stagflation, and the probability is frankly quite high. Economic stagnation and high inflation are things we should expect. Given that the first quarter of 2024 has a high base, the economy is unlikely to show any growth as soon as the first quarter of 2025. We will, in fact, just hover around zero, meaning that the Russian economy will stagnate. Moreover, stagnation is not so bad. Despite the fact that the budget impulse will continue, large-scale monetary stimulation of the economy will not end.

However, such growth as at the end of 2024 will no longer happen in 2025 as inflation will remain high. Again, the forecast remains at 4.5%, and the budget for 2025-2027 was adopted based on this. This forecast, in my opinion, is unrealistic, especially since inflation is an inertial thing. We are entering 2025 with inflation of around 10%, and it is unplausible to imagine that the forecast will come true. But there will still be enough money for the budget impulse. And this means that there will be no huge collapse in the economy.

Once again, there will be stagnation – a zero growth or a slight growth. It is not so bad.

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