The EDB projects Russia’s GDP to grow by 3% in 2021-2022

18 September 2020

Moscow, 17 September 2020. The Eurasian Development Bank (EDB) projects Russia’s GDP to grow by 3% on average in 2021-2022. This is stated in the macroeconomic review for Russia disseminated by the EDB’s Directorate for Research.

The EDB’s base case projections suggest that easing quarantine restrictions in the second half of the year and maintaining stimulating monetary and fiscal policies will be conducive to economic recovery. At the same time, as Alexei Kuznetsov, Head of Economic Analysis at the EDB, noted, this process will be long because of increased uncertainty, social distancing, limited external demand, and weaker investment activity – a return to the pre-crisis output levels is expected in 2021-2022. Russia’s GDP is projected to decline by 4.2% by the end of 2020 and then grow at a rate of around 3% a year on average in 2021-2022.

In the first half of 2020, the Russian economy experienced a massive shock due to the COVID-19 pandemic. As a result, over the period, the country’s GDP fell by 3.4% year-on-year. The worsened epidemic situation has pushed down consumer and investment demand and the drop in oil production under OPEC+ agreements contributed to the decline in exports.

The review notes that growing geopolitical risks exerted increased pressure on the Russian rouble in August – early September and are expected to constrain its appreciation during the remaining part of the year. The exchange rate is expected to improve in 2021, provided that the spread of the coronavirus slows down and the geopolitical situation normalises.

The depreciation of the national currency has accelerated inflation, which reached 3.6% year-on-year in August (3.0% in December 2020). The EDB projects the consumer price index to grow to 3.9% year-on-year by the end of 2020 because of exchange rate pass-through as well as the low base effect of the previous year. Limited internal and external demand will significantly constrain inflation in the medium term. As a result, with the stabilisation of the exchange rate, the growth rate of the consumer price index will decelerate to 3.5% year-on-year by the end of 2021 and then begin to gradually recover towards the Bank of Russia’s target of 4% as disinflationary factors weaken.

As the risk of inflation deviating below the target in the medium term prevails and it is necessary to support domestic economic activity, the Bank of Russia has reduced the key rate to 4.25% from 6.25% at the beginning of the year. EDB analysts estimate that, as the potential for lowering the rate has already been largely used, it will remain in the range of 4–4.25% until the end of the year. The key rate is expected to be raised gradually to a neutral level starting from the second half of 2021, while the monetary policy in 2021–2022 will remain moderately stimulating.

It is also noted that the persistently high risks may worsen the projection as the emerging economic recovery remains unstable because of the continuing threat of a large-scale second wave of the pandemic, the aggravation of US-Chinese relationships, and the strengthening of sanction rhetoric against Russia.

The full text of the review is available on the EDB’s website.

Additional Information:

The Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. The EDB's charter capital totals US $7 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan.

The EDB Media Centre:

Alexander Savelyev +7 (985) 765 23 59 (Moscow)  

Azima Sapargaliyeva +7 (777) 750 00 08 (Almaty)

Sergey Gorbachev +7 (916) 727 22 00 (Moscow)

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