BOFIT Forecast for Russia 2023–2024

Due to the surprisingly robust growth in the first half of 2023, and the low base, growth for all of 2023 should be around 2 % even with decreasing quarterly growth for the rest of the year. We expect on-year growth of about one percent next year. Notes BOFIT senior adviser Laura Solanko: ”An ever-increasing share of the Russian economy’s resources now goes to the war effort. GDP growth supported by such public spending is unsustainable over the longer term.”

This year’s growth has mainly been driven by growth in public spending and increased bank lending. Strong growth in demand has boosted capacity utilisation to the maximum in many branches and pushed unemployment record lows. Mobilisation and emigration have exacerbated Russia’s already chronic labour shortage caused by demographic trends. Economic activity has recovered to near pre-war levels and sanctions limit imports, particularly imports of investment goods. Russia currently lacks the prerequisites for sustained long-term growth.

Our current forecast is subject to exceptionally high uncertainty. A slight increase in quarterly growth during the second half of this year would increase the pace of 2023 GDP growth above our current projection. On the other hand, Russia is hitting the limits of growth and there are already signs of cooling growth in private consumption.

Due to Russia’s war of aggression, the external operating environment has become more unpredictable and there is a real risk of significantly larger impacts on foreign trade. Sanctions have already restricted imports of high-technology goods that can potentially be used for military purposes and capital continues to flow out of the country. Finally, a shift in the course of the war could significantly alter the trajectory of Russia’s economic development.

The latest forecast is available at https://www.bofit.fi/en/monitoring/forecasts-for-Russia-and-China/latest-forecast-for-russia/.

We are hosting a webinar discussion in English of the Russia forecast on Thursday, September 14, 2023, between 4 and 5 pm (EEST, UTC+3).

The webinar includes two short presentations: ”Update to BOFIT’s 2023–2024 Russia forecast” by Laura Solanko and “Russia’s foreign trade developments during the war” by Heli Simola.

To join the webinar, register via the online form by 2 pm EEST.

For further information:

• Iikka Korhonen, head of research, iikka.korhonen@bof.fi
• Laura Solanko, senior adviser, laura.solanko@bof.fi
• Heli Simola, senior economist, heli.simola@bof.fi