The Central Bank described the adaptation and crisis scenarios for the economy

Alternative options for the development of the Russian economy will be the path of accelerated adaptation or the crisis under the influence of the global recession, by analogy with the events of 2008, the Central Bank believes.The last scenario assumes a decline in GDP for three years

The Central Bank presented two alternative options for the development of the Russian economy, depending on external conditions - the "Accelerated Adaptation" and "Global Crisis" scenarios, follows from the draft "Main Directions of the Unified State Monetary Policy for 2023 and the period of 2024 and 2025", presented by the Bank RUSSIA 12 August.

Adaptation scenario

The “fast-track adjustment” assumes that the global economy will continue to develop within the framework of previously formed trends, and, despite the increase in rates by the largest central banks, a large-scale recession is avoided. The geopolitical background also remains unchanged relative to mid-2022 - the external restrictions imposed on Russian exports, imports, investment and technological cooperation will largely remain in the medium term, the Central Bank admits.

In such conditions, Russia's GDP in 2022 will decrease by 4-6%, as expected in the baseline scenario, but in 2023 it may move into a growth zone (the Central Bank sets a range from minus 2% to plus 1%), and in 2024 it will grow by 2.5–3.5%.

In this scenario, the Russian economy receives the main impetus from a faster recovery of domestic demand, as well as the formation of new economic ties and the expansion of the parallel import mechanism, the Central Bank explains. Due to the saturation of markets with both new and familiar goods through parallel imports, supply shocks are offset much faster than in the baseline scenario. In addition, the adaptation forecast includes a slight improvement in the situation in the transportation and logistics of EXPORT cargo, which will positively affect exports.

As a result, the surplus in the balance of goods and services in 2023 will be slightly higher than the baseline scenario — $175 billion against $161 billion.

The Central Bank predicted when the economy will return to potential growth rates Economy

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In this case, inflation will return to a level close to the target (3.5-5.5%) by the end of 2023, follows from the report. This will happen due to a looser monetary policy compared to the baseline scenario (the key rate in 2023 will be in the range of 5.5–7.5%). In 2024-2025, the price growth rate will remain close to the target of 4% with the key rate in the neutral area of ​​5-6% per annum, the Central Bank notes.

The baseline scenario of the Central Bank assumes a reduction in Russia's GDP by 4–6% in 2022, by 1–4% in 2023, and a transition to a growth zone in 2024 (1.5–2.5%).

In the main scenario, the regulator predicts inflation in the range of 12-15% in 2022 and 5-7% in 2023. A return to the 4% target is expected in 2024.

The price of Urals oil in 2022-2025 is projected at $80, 70, 60 and 55/bbl. respectively.

Crisis scenario

The “Global Crisis” scenario, according to the Central Bank, proceeds from the assumption that the fragmentation in the world economy, which appeared as a result of geopolitical tensions and trade wars in recent years, will become more pronounced. Markets will increasingly be concentrated in regional blocs, countries will be less focused on the use of comparative advantages and more on increasing the localization of production, follows from the scenario of the Bank of Russia.

Under these conditions, there are two main risks. The first is a significant deterioration in the state of the world economy. “In advanced economies, stagflationary trends may intensify. Raising rates may not be enough to sustain inflation slowdown, inflation expectations may deviate from the target even more than now and stop being anchored on it,” the Central Bank warns.

The Central Bank announced a decrease in the role of the ruble exchange rate for rate decisions

The second risk is an increase in geopolitical tensions against Russia, including the introduction of additional restrictions on Russian exports. “A decrease in the supply of oil and oil products on the world market will lead to a short-term strong increase in the price of Brent crude oil. The costs of companies will begin to rise, and inflation will accelerate even more, ”the document says. This will provoke a sharp increase in key rates around the world, which, against the backdrop of a large amount of accumulated debt and falling demand, may lead investors to reassess the financial solvency of borrowers with unstable incomes and risky assets in the market as a whole.

“As a result, an economic and financial crisis may begin in the global economy, comparable in scale to the crisis of 2007-2008,” the Central Bank fears. The global economy will slow down sharply, which will have a disinflationary effect on the overall rate of price growth. However, despite a gradual slowdown, external inflation will not return to the target level by the end of the forecast horizon. The price of oil will be under pressure both from low external demand against the backdrop of a recession in some major economies, and the geopolitical background, which will lead to an expansion of discounts on Russian varieties, the regulator describes a possible situation.

The crisis scenario assumes that the price of Russian Urals brand oil will be significantly lower than in the baseline scenario over the entire forecast horizon — from $80/bbl. in 2022 it will drop to $35/bbl. in 2023–2024 and will only grow to $40/bbl. in 2025. The surplus in the balance of goods and services in 2023-2024 will not exceed 35-40% of the baseline scenario ($64 and 28 billion against $161 and 87 billion), follows from the document.

For the Russian economy, the implementation of the global crisis, along with the deterioration of the geopolitical background, will significantly complicate structural adjustment and adaptation to new conditions, warns the Central Bank. Economic output in 2023 will decline even more than in 2022 (by 5.5–8.5%). In 2024, the decline will continue (minus 2-3%), and only in 2025 is growth possible - by no more than 1%.

Inflation will rise to 13–16% in 2023 on the back of a weakening ruble and increased supply shocks, and will return to the target only in 2025. The key rate will be high in 2023-2024 (11.5-13.5% and 12-13% respectively) and will decrease only in 2025 (6-7%), according to the description of the crisis scenario.