Russia Lifts 2024 Growth Forecast as Economy Rides Sanctions

(Bloomberg) -- Russia’s Economy Ministry raised its 2024 growth forecast despite mounting sanctions over President Vladimir Putin’s war in Ukraine.

Most Read from Bloomberg

Gross domestic product will expand by 2.8% this year, Economy Minister Maxim Reshetnikov told a government meeting on Tuesday. That compares with the ministry’s forecast of a 2.3% GDP increase for 2024 during budget preparations in the fall.

“The main growth factor remains domestic consumer and investment demand,” Reshetnikov said. Growth in retail sales is projected to reach 7.7% in real terms this year, up from 6.4% in 2023.

The GDP forecast follows a 3.6% rise last year that also exceeded the ministry’s expectation of a 2.8% expansion, as Russia’s government injects massive spending into the defense industry and pours money into shielding domestic businesses. The International Monetary Fund this month revised up its estimate for Russian GDP growth by 0.6 of a percentage point to 3.2%, calling it a “significant” change.

Source: Russia’s Economy Ministry

“The Russian economy has not only adapted to the new external economic conditions, but has also demonstrated the ability to develop sustainably,” the Economy Ministry said in its forecast.

It identified a tightening of sanctions, particularly secondary-level ones, and a slowdown in the global economy as key risks for Russia.

What Bloomberg Economics Says...

The government’s revised forecast will allow it to boost federal spending by around 0.8% of GDP. Since Covid, Russia seems to be in a cycle of relying on upbeat economic forecasts, which are used to boost federal spending, which end up driving inflation and the tax base higher. The current revision is no exception to this rule — the government’s upbeat growth projections will make the Bank of Russia’s job of cooling inflation harder.

- Alex Isakov, Russia economist

Reshetnikov said inflation in Russia is likely to slow to 5.1% by the end of this year, still above the central bank’s 4% target.

Russia Holds Rate as Attacks by Ukraine Spur Inflation Risks

The ministry forecast growth will slow to 2.3% per year in 2025 and 2026. Wage growth is also seen slowing to 3.6% in 2025 and 2.5% by 2027.

(Updates with Bloomberg Economics comment after the sixth paragraph.)

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.