Russian Central Bank expects Russia's GDP to contract 4% in Q3, roughly 7.1% in Q4

MOSCOW. Nov 8 (Interfax) - The Central Bank of Russia has estimated that Russia's GDP will contract 4% year-on-year in the third quarter of 2022 and in the area of 7.1% in the fourth quarter, according to a Central Bank monetary policy report.

According to the Russian Federal State Statistics Service (Rosstat), Russia's GDP contracted 4.1% year-on-year in Q2 2022 after growing 3.5% in Q1. Rosstat will publish data on GDP in Q3 on November 16.

"The dynamic of business activity in the third quarter turned out to be better than the Bank of Russia forecast earlier. Output was supported by the dynamic of industrial production, scale of construction work and retail sales, as well as activity in the agricultural sector, where a record harvest is expected," the report said.

"However, the latest indicators point to a decline in economic activity in September. The main reason was the growth of uncertainty amid the intensification of geopolitical tensions and the partial mobilization. The assessment of the Bank of Russia's business climate indicator deteriorated in all major sectors in October. Consumer activity remains muted," the CBR said, warning about the deterioration of the economic situation in the early fall.

"Nonetheless, the more favorable dynamic of exports and domestic demand compared to the expectations of July make it possible to improve the outlook for 2022. According to the Bank of Russia's updated baseline forecast, the drop in GDP in 2022 will be 3.0-3.5%," the CBR said. Its July forecast projected a drop of 4-6%.

"However, the impact of supply shocks could be more drawn out. In 2023 the economy will contract by 1-4%, but growth in the fourth quarter will be lower than previously forecast [at 0-1.5% instead of 1-2.5% as forecast in July]. In 2024-2025, GDP growth will amount to 1.5-2.5%," the CBR said, talking about the new medium-term forecast that was published after its board meeting on October 28.

The CBR's economic forecast for 2022-2025 is more conservative than the government's. The Economic Development Ministry expects GDP to shrink 2.9% in 2022 and another 0.8% in 2023, but then to grow by 2.6% annually in 2024-2025.