Experts from the Presidential Academy studied the country’s development forecasts prepared by the Ministry of Economic Development of Russia
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In April, at a meeting of the federal government, the head of the Ministry of Economic Development, Maxim Reshetnikov, presented a forecast for the development of the country’s economy until 2027. How realistic is it? The document was studied by a group of experts from the Laboratory of Structural Research of the Presidential Academy: Alexey Vedev, Vladimir Eremkin, Konstantin Tuzov and Marina Kovaleva.
THE ESTIMATES ARE REALISTIC
At a meeting of the Russian government, macro forecasts and scenarios for the development of the country’s economy were reviewed and approved. The basic scenario was used as a basis for drawing up draft federal budgets for 2025 and 2026-2027.
“Overall, the forecast parameters do not seem contradictory, and the system of assessing future dynamics appears balanced,” the experts from the Presidential Academy note. “In many respects, the forecast can be considered realistic and achievable. However, in order to achieve the goals, a number of macroeconomic problems need to be successfully resolved.”
Moreover, the initial conditions for the formation of economic development scenarios are in many respects close to the estimates of the authors of the study and other renowned experts. The export price of Russian oil in the baseline scenario, according to the Ministry of Economic Development of Russia, will average $65 per barrel over the entire forecast period. At the same time, the conservative scenario contains much more negative estimates: the price of Russian oil by the end of 2027 will drop to $52.9 per barrel.
The baseline scenario estimates are quite realistic, experts say, as the projected growth of the global economy and the economies of the largest countries will support a steady increase in demand. In addition, armed conflicts involving the largest oil-producing countries, as well as the sanctions policy of the G7 states regarding exports from some of these states, will maintain a shortage of supply in the oil market, which is unlikely to allow for a significant reduction in the price of energy resources.
WHAT WILL AFFECT THE ECONOMY?
“In our opinion, within the framework of the conservative scenario, additional justification of the reasons for the negative dynamics of the Russian oil price is necessary, including an explanation of exactly what factors will be able to reduce average annual prices by 18% from the level of 2023 in three years. The current version of the macro forecast does not contain such explanations,” the study notes.
Such factors may include a significant slowdown in the global economy; a reduction in conflicts (Middle East, Ukraine); easing of sanctions pressure on a major supplier; increased or non-reduced production by OPEC+ countries.
The forecast for oil production volumes in the baseline scenario assumes that the phase of oil production decline will end in 2024 and a sustained recovery in growth will begin in 2025. This scenario seems realistic and possible. In the conservative scenario, the phase of oil production decline in Russia will continue until 2025, and the recovery will be slow and will not allow reaching the current year’s level even by the end of 2027.
“As it follows from the forecast for oil exports in physical terms, the increase in production volumes in the baseline scenario will most likely be associated with the country’s growing export capacity. However, in the conservative scenario, the dynamics of oil exports has a much more positive trajectory than the dynamics of production. At the same time, the export of petroleum products in the baseline scenario will remain stable throughout the forecast interval, while in the conservative scenario it will significantly decrease,” the study reads.
Thus, the projected dynamics of oil production in the conservative scenario apparently suggests problems with the export of Russian oil products. In addition, domestic demand may decline.
INFLATION WILL BE REDUCED IN ONE YEAR
The gas price forecast is in line with the estimates of the authors of the study. It is possible that the volumes of pipeline gas exports can be increased at the expense of friendly countries (primarily China). This assumption reflects the base scenario of the forecast. The difference in the dynamics of the basic and conservative versions of the LNG export forecast can be explained by the gradual abandonment by Europe of its purchases from Russia, while the rate of substitution by exports to other countries (as shown in the conservative scenario) will approximately correspond to the expected pace of reduction. The basic scenario can be successfully implemented if the demand for Russian LNG in hostile countries is not greatly affected, because today they are an important sales market.
The conditions of the domestic scenario for the formation of options for the development of the national economy, modeled by the Ministry of Economic Development of Russia, also seem reliable and objective. According to the authors of the study and most experts, the Bank of Russia will be able to return inflation to the target within the next year and a half.
At the same time, the forecast for the dollar/ruble exchange rate is too conservative, experts say.
“Indeed, there are several factors that can negatively affect the national currency (for example, a reduction in Russia’s current account balance); however, the low risks of a global recession, consistently comfortable Russian oil prices, and the recovery of oil production and exports forecast by the Russian Ministry of Economic Development are unlikely to allow the national currency to weaken so noticeably,” the study notes.
As for the impact of the exchange rate on inflation, domestic demand is ensured by an increase in domestic supply, and the ruble’s share has grown significantly in recent years, so the impact of the exchange rate on inflation is much weaker than before.
The experts of the Presidential Academy believe that the conservative forecast scenario should be supplemented with a justification of the reasons for the negative dynamics of the Russian oil price expected by its developers, indicating what factors will be able to reduce average annual prices by 18% from the level of 2023 in three years. The current version of the forecast does not contain such justifications.
In addition, an additional description of the reasons for the projected dynamics of the ruble/dollar exchange rate in the conservative and baseline scenarios is required.
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