Russia’s GDP decline could reach 12.4 percent this year, Ministry of Economy documents show

Russia expects the economy to shrink 8.8% in 2022 in the basic case scenario or 12.4% in the more conservative scenario, a Ministry of Economy document said Wednesday.

The conservative forecast is in line with former Finance Minister Alexei Kudrin’s forecast that the economy is on track to shrink by more than 10 percent with the largest decline in GDP since 1994 earlier this month.

The Ministry of Economy expects Russia’s economy to grow 1.3 percent in 2023, 4.6 percent in 2024, and 2.8 percent in 2025, the document said. In a conservative scenario, the economy is expected to shrink 1.1%.

The extent of damages to the economy this year is uncertain due to possible new sanctions and uncertainty regarding trade issues. The government is likely to revise the forecast several times this year.

Inflation, which had already surged to 17.62% as of April 15, has accelerated to 22.6% this year, well above the central bank’s target of 4% in 2023, according to the document.

The central bank raised interest rates from 9.5% in late February to 20% in an urgent move, saying Governor Elvira Nabiullina helped stabilize the ruble and overcome the surge in inflation.

The bank’s key rate was reduced to 17% on April 8 due to another unplanned move. Analysts surveyed by Reuters expect interest rates to fall another 200 basis points to 15% at the bank’s next rate-setting meeting on Friday.

According to the ministry, fixed investment will increase by 7.7% in 2021 and then decrease by 25.4 to 31.8%, while real disposable income, which is a very sensitive indicator for Russia, will rise, especially when prices reach the standard of living. It could decrease by 9.7% in 2022. A conservative quote.

The World Bank predicts that Russia’s 2022 GDP production will decline by 11.2 percent due to western sanctions imposed on Russian banks, state-owned enterprises, and other institutions.