The Russian economy, according to the International Monetary Fund, showed further growth in July, reflecting increases in the first half of the year in the retail trade, construction and industrial production sectors, due to a strong fiscal stimulus.
According to the World Economic Outlook in July, Russia proved capable of resisting (or circumventing) sanctions and the Fund revised upwards the estimates of the GDP 2023 at 1,5% versus 0,7% expected last April, up 0,8%. The IMF forecasts for 2024 remain unchanged at +1,3%.
The country led by Vladimir Putin it therefore seems to have recovered after the fall in GDP in 2022 (-2,1%), caused by the sanctions approved by Kiev's allies after the invasion of Ukraine.
Were it not for an economy drugged by war, one might observe that the growth is even higher than that of Italy and Germany. On the same occasion, the International Monetary Fund confirmed the forecast of 1,1% growth in Italian GDP in 2023, lowering the estimate for 2024 to +0,9% from the previous +1,1%. For Germany, however, the IMF estimates are for a GDP of -0,3% and +1,3% (from -0,1% and +1,1%).
Increased rates by 100 basis points
Last week, the Russian central bank surprised the market by raising its interest rate by 100 basis points to 8,5% per annum for the first time in a year from 7,5% in an effort to combat rising inflation. Current price growth rates, including a variety of underlying indicators, have exceeded 4% on an annualized basis and are still rising. “The increase in domestic demand exceeds the ability to expand production, also due to the limited availability of labor resources. This reinforces the persistent inflationary pressure in the economy. Inflation expectations have risen. The trend in domestic demand and the depreciation of the ruble since the beginning of 2023 greatly amplify the pro-inflationary risks”, explain the central bank. Monetary policy of the Bank of Russia, the note said, "will reduce the upward deviation of inflation from the target."
The Central Bank of Russia also left the door open for further rate hikes at upcoming meetings to stabilize inflation near 4% in 2024 and beyond. Also last week Russia announced that it will not prolong the agreement that a year ago made it possible to resume exports of cereals from Ukraine.
