The government has lowered its economic growth forecast to nearly zero.

The government hopes to avoid an economic downturn, but no longer dreams of rapid growth. "We expect that in 2026 we will be able to maintain positive GDP growth of +0.4%," Deputy Prime Minister Alexander Novak announced the updated government forecast. The previous forecast projected GDP growth of 1.3%.

Such modest estimates were unexpected. Economist Andrei Gnidchenko of the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF), which reviewed forecasts from leading Russian and international organizations in early May, called the forecast a surprise. According to the Ministry of Economic Development, GDP contracted by 0.3% in the first quarter, and Vladimir Putin demanded that the government and the Central Bank accelerate economic growth.

The forecast, according to Novak, is based on "conservative" conditions. Specifically, the average price of Russian oil is $59 per barrel this year and only $50 over the next three years. This is lower than even the ever-cautious Central Bank, which in April raised its forecast to $65 per barrel this year and to $55 in 2027-2028.

Modest expectations for oil prices will help limit budget expenditures, according to Novak's explanation: it must be balanced when revenues are falling (mainly due to the strong ruble and low oil prices), while spending needs, including for the war, are growing. The low price forecast means lower baseline oil and gas revenues, and any additional revenues, if any, will go to the National Welfare Fund.

Economist Yegor Susin calls this "not exactly a forecast, but rather a prerequisite for the budget": the oil and gas portion of the budget promises a significant reduction in expenditures, "although in the fall, of course, we will review everything again based on actual changes." The new, "apparently higher level of expenditures" in the budget, according to economist Dmitry Polevoy, remains the main factor of uncertainty/risk.

Novak's forecast predicts a very difficult year for the economy. Investment will continue to decline this year, inflation will remain quite high (5.2%), Russians' income growth will slow to 1.6% (in real terms) after 7.7% last year, and consumer activity will slow to 1.2% after 4% in 2025. Unemployment will increase, but only slightly – to 2.3-2.4% (2.2% last year and in the first quarter).

Then the economy will adjust, the Central Bank will lower the key rate, and the effects of the policy easing already in place will become apparent, with GDP growth reaching 1.4% next year, increasing to 2.4% in 2029. Investments will also grow from 2027, and income and consumption will accelerate, according to the government forecast. Even if it comes true, the growth rate it envisions is far from the 3.5% that Dmitry Belousov, head of the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF), Andrey Klepach, chief economist at VEB, and Alexander Shirov, head of the Institute of Economic Forecasting at the Russian Academy of Sciences, called the minimum necessary.

source: The Moscow Times https://archive.is/YWbYV