BCS GM unveils updated macroeconomic forecasts for Russia

MOSCOW. July 8 (Interfax) - BCS Global Markets (BCS GM) has revised its macro-economic forecasts for Russia, the investment bank said in a report.

"The authorities remained overly optimistic in June, despite growing sanctions pressure, weak consumption figures and still high financial uncertainty: they continued to forecast economic recovery in the near future and a moderate decline of 3%-5% for 2022. The strengthening of the ruble and the easing of inflationary pressures have often been described as some of the main macroeconomic policy achievements of the last two months. However, in the current environment, these aspects cannot be viewed as signs of stability or recovery," the analysts said.

"As for the ruble, the overvaluation of the national currency due to sanctions pressure and capital controls has become a significant problem for the government and budget revenues. Deceleration of price growth could also be seen as a risk, especially if the economy crosses into sustained deflation amid falling consumption. Overall, current economic processes appear to point to a more profound decline in output - at least in the next two quarters," they said.

But they singled out a number of important factors that can mitigate the most unfavorable scenarios and improve the macroeconomic situation for Russia slightly. They include still-strong export positions, monetary policy easing and the announcement of a fiscal stimulus package of 5 trillion rubles.

BCS GM macroeconomic forecasts for Russia:

2022 2023 2024 Russian GDP -8.5% -5.3% 3.5% Inflation (end of period) 15.5% 6.7% 4.2% Budget deficit, % of GDP 1.8% 0.9% 0.8% Ruble exchange rate (end of period) 75 rubles/$1 82.8 rubles/$1 87.8 rubles/$1 Brent crude $110/bbl $93/ bbl $78/ bbl Urals crude $90/ bbl $64/ bbl $69/ bbl Central Bank rate (end of period) 7.0% 6.8% 5.8%

The analysts say the main risks for the forecasts are related to increased sanctions pressure, worsening foreign trade indicators, a global economic downturn, which could put additional pressure on the Russian economy, and insufficient fiscal stimulus. Among these factors, austerity policies and the imposition of new sanctions are seen as the main potential obstacles to stabilizing the economy.

"The Russian economy has already been subject to considerable sanctions pressure. However, if Western countries continue to introduce new restrictions aimed at a wider range of sectors, this will further isolate the Russian market and could worsen its unstable economic outlook. In an unfavorable geopolitical environment, additional public spending is seen as the main source of economic stabilization and recovery: the adverse economic consequences could be more serious if the authorities shift the focus from economic support to austerity measures," the analysts said.