In the Federation Council, Minister of Economic Development Maxim Reshetnikov presented a forecast of the socio-economic development of Russia for 2024 and for the planning period 2025 and 2026. Invest-Foresight asked Nikita Maslennikov, head of the Economics and Finance department of the Institute of Modern Development, whether it was possible to adopt the parameters specified in the document.
– As of December 2023, inflation will be 7.5%, average annual inflation for 2024 will be 7.2%, slowing down to 4.5% by December next year. How real is such a forecast dynamics and how can it be achieved?
– I think that today’s estimates of the Ministry of Economic Development are tougher than those of the Central Bank.
– Is it good or bad?
– It is ambiguous in the sense that the Ministry of Economic Development, overestimating and betting on such an average annual inflation of 7.2%, draws forecasts for the gross domestic product somewhere around 2.3%. It is clear that this is, in general, inflationary pumping. Since you have a value indicator, since your prices are such and the average annual inflation is such, you can “draw” such a pace.
The question arises immediately: at this rate, will your investments be within the framework of your forecast or still lower? Because today the potential growth rate is somewhere around 1.5%. If you want to increase it organically, then you need investment growth.
– And how can you obtain it?
– With such inflation, investments, especially private ones, do not feel good, they need inflation rate about 5%, and better even less. While today’s indicators, which the Ministry of Economic Development predicts for the current year, and this is 6%, are, in fact, largely a statistical artifact.
– Where does such a conclusion come from?
– Because the production of military equipment counts in statistics as an investment. Production, say, of a gun, or 200 tanks is investment in the economy. However, this is not an increase in production capacity or an increase in the size of potential output. Therefore, it turns out that everything is growing on the basis of inflation.
Well, if the Central Bank tightens policy? If suddenly, we see inflation, especially in the first quarter of next year, quite high? Then we still have July – look, our tariffs will grow by more than 10%. Moreover, the indexation of housing and communal services – 9.4%. True, it starts at July 1, but…
– All the same, the delayed effect should implement.
– Yes, it will implement, and here the big question arises: what happens during such inflation with investments? Will we not repeat the fate of this year, when our demand may not be growing very much – what will we have with the gap in supply and demand? When, in fact, the supply will not grow or, at least, will lag behind. The inflation gap raises the question…
The second is the forecast, if we take it as a whole, for GDP, for other macroeconomic indicators, is targeted. Remember, there used to be three options: basic, conservative and target ones?
– What does the target nature of the forecast suggest?
– The target implies an active economic policy on the structural vector.
– And we have it, this vector, at the moment?
– It seems like the transformation of our economy is really going on. But clear structural policies, support for the structural transformation of the economy… Apparently, the Ministry of Economic Development proceeded from the fact that it would be. But we cannot answer to ourselves how these expectations are met until we see the budget. There are parameters, but they also raise questions, for example: what is the situation with public investments? We look at the structure of spending and see that spending on defense and law enforcement is higher than on the social sphere. The spending on economy is reduced to 10.5%, although it has always been somewhere around 13-14%.
And as a result, the task appears to find a budget incentive for growth rates, for other macro indicators. Moreover, credit policy will remain tight at least until the middle of next year – the Central Bank stated this quite
– …To curb inflation.
– Yes, exactly. And to create conditions for organic growth. We will rest on the investment pace, on the pace for private investment. But with an average annual inflation of 7.2%, this is difficult. Therefore, in order for GDP to have sustainable growth, the rate of investment growth must outstrip it. And next year we have somehow uncertain expectations. And by 2026, they are only reaching the level of 3% growth.
– Is that not enough?
– This is not enough for sustainable and confident growth. Therefore, there is a suspicion that what is called the base option is actually a target option that involves active actions in economic policy, active regulatory measures to support business activity.
When the budget appears, it will become more or less clear to what extent this forecast is justified. At the same time, let me remind you that the Ministry of Economic Development has an intriguing caveat on risks: external factors (the world economy is really slowing down, not catastrophically, but still). The first estimates were given by the OECD (Organization for Economic Cooperation and Development. – Ed.), But we will wait until mid-October, when the IMF presents its estimates, they have more base for analysis. What does slowing of the global economy mean? That even with rising oil prices, there will be a decrease in demand for Russian exports. And it will be, in theory, lower than this year.
– But prices for the same energy resources are now high…
– Yes, but this factor is unstable. Today prices are rising and everything is great. And tomorrow this rise in prices will drive some economies into recession… By the way, if you look at the calculations of the Central Bank with an increase in the rate to 13% and the forecast of the Ministry of Economic Development, then there is a rather serious difference in external economic indicators, almost twice. Especially in terms of balance of payments.
On what basis are such export growth rates indicated? Especially given the fact that the global economy will be weaker than this year?
– What about other risks?
– Labor market situation. So far, there are no clear decisions on how we are going to change it. Yes, it is very good that the government is concerned that it will adjust the five-year forecast for personnel once a year. Wonderful, but this is just the beginning of work! After all, the budget is still important because, for example, it shows: how much will be spent on vocational education? Training and retraining?
Either it will be a public system, or you give benefits to private business, which prepares personnel for itself in its educational centers. How much will it cost? So far, estimates of needs differ almost ten times – among experts and the Ministry of Labor.
The risk exists, of course, the Ministry of Economic Development quite rightly determines it, but it is not clear to what extent it is implemented, and to what extent it will be smoothed out, this requires special regulatory solutions.
– And finally, another risk…
– Yes, the monetary policy of the Central Bank. Here is an incomprehensible rigidity. They either keep, or increase the rate, which they also do not exclude. The rate forecast for next year is about 9.5% in the average interval, but now it can also be raised, because the upper limit of the forecast interval for this year is 13.6%, that is, another increase is possible.
For all these risks, they have a conservative budget option in which they believe that the growth rate will not be higher than 1.5%.
So it turns out in life: if the basic option becomes targeted and its content depends on economic policy, which is not yet very clear and understandable to us, and the conservative option depends on the feasibility of risks, then this option becomes more realistic.
– What do you think is the option closer to reality?
– My position is this: let’s take the average value between the conservative and the base option. Then we get GDP growth somewhere around 1.5-1.8%. The latest version of TsMAKP (Center for Macroeconomic Analysis and Short-Term Forecasting. – Ed.) is exactly about this: this year they also do not see 2.8%, believing that there will be 2.2-2.5%. The Central Bank and our president spoke about this very carefully: expected growth rates from 2.5% to 2.8%. Well, next year, TsMAKP forecasts are from 1.5% to 1.8%.
– Nikita Ivanovich, maybe it is right to move with such careful small steps and not try to claim the advancing growth rates that sometimes become a reason for boasts?
– Yes I agree. We need to shift the focus from digital indicators to qualitative ones in understanding the logic of our development. Let’s define: our stable sustainable development in the future will be determined by how we carry out structural transformation and how we increase the comfort of the business environment, which is the basis for private investment. Private investment, in turn, is a real engine of progress and economic growth. And then, if we have outlined these basic regulatory conditions, we must look: how much is needed for the budget, what should be the monetary policy and what we need to do in terms of targeted measures of the structural agenda: stimulate the IT sector or something else. In the meantime, we are acting a little defocused.
– Prioritizing by numbers, not content?
– Indeed, the content remains a little outside. Again, classics – you are told that you will have such a growth rate with inflation of 7.2%. And the question arises: what is the quality of growth? At the same time, of course, the growth rate of real disposable income and real wages next year is 1.5-2 times lower than this. Then what about demand? How do you get 2.3% without investment and with somewhat decayed, weakened demand?
– It turns out that it is very similar to visualization of Krylov’s fable about swan, crayfish and pike…
– As long as we have a Krylov economy, really. Rather, thoughts about decisions now resemble the classic Krylov plot.