Renaissance Capital foresees 1pc growth for Russian economy in ’24

By Andrei Skvarsky. Moscow-based investment bank Renaissance Capital forecasts 1 per cent growth for the Russian economy in 2024, relative near-term stability for the rouble and the reduction of a prohibitive key interest rate this year but argues that inflation tops Russia’s macroeconomic agenda. In 2023, Russia’s economy grew by 3.2 per cent, RenCap estimates. […]

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By Andrei Skvarsky.

Moscow-based investment bank Renaissance Capital forecasts 1 per cent growth for the Russian economy in 2024, relative near-term stability for the rouble and the reduction of a prohibitive key interest rate this year but argues that inflation tops Russia’s macroeconomic agenda.

In 2023, Russia’s economy grew by 3.2 per cent, RenCap estimates. There is no official evaluation yet of last year’s performance.

RenCap has better 2024 predictions for some of Russia’s industries than for others.

“We have every reason to expect manufacturing to maintain its strong positions in 2024,” but the construction, transport and service sectors have gloomier prospects, Sofya Donets, the bank’s chief economist for Russia and other former Soviet countries, told a news briefing in Moscow last week.

The rouble is likely to remain generally stable at least until March, Donets said, citing domestic measures to support the currency, its continuing dependence on global oil prices and Russia’s stabilised trade balance.

Yet the rouble is still “fragile” because of potential changes to world prices for oil and other commodities, she said.

Inflation, which hit an annual mark of 7.42 per cent last year, has dominated Russia’s macroeconomic agenda since around mid-2023, the economist said.

In 2015, the central bank launched a strategy to keep inflation within 4 per cent and is determined to cut it to this level. “It’s obvious,” Donets said, “that at the moment it’s the priority of the central bank to reduce inflation in a high-quality way and quickly – namely this year, – practically at any cost.”

But this obviously darkens prospects for a major reduction of the key interest rate, which is 16 per cent today and, Donets said, has been “at record highs in relation to nominal inflation since the early 2000s, or even the ‘90s”.

Corporate borrowing may shrink in scale if the central bank does not start cutting the rate by the end of March, Donets warned.

RenCap expects the rate to go down gradually between spring and the year end and close at less than 10 per cent.

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