By the end of 2024, the Russian economy has found a new impetus to growth at the expense of budget expenditures, according to the Central Bank's bulletin titled "What the Trends Say". Experts believe that if it were not for the forced increase in the key rate, 2024 can be considered a successful year in general, in which a sustainable model of growth with reliance on the budget in the face of sanctions has developed. According to economists' forecasts, in 2025 the peculiarities of Russia's economic development will consist in reorientation towards friendly countries, increasing the role of the oil and gas sector, national projects in IT, biotechnology and energy. Details - in the material "Izvestia".
Overheating of demand at the expense of credit
Judging by operational and survey indicators, the Russian economy received a new impetus for growth at the end of the year, analysts of the Central Bank believe. This happened against the backdrop of accelerating growth in budget expenditures and widening budget deficit. As a result, consumer demand remained strong despite a slowdown in retail lending and a high savings rate.
The regulator said that a return to low inflation requires maintaining tight monetary conditions for an extended period of time and adhering to the approved budget parameters for 2025-2027. In December 2024-January 2025, high rates of price growth have been maintained. This is primarily due to the activation of demand, which still exceeds the capacity to increase the supply of goods and services, the Central Bank believes.
"At the same time, a significant contribution to price growth is made by supply-side factors associated with new sanctions restrictions, indexation of regulated prices, tariffs and fees and a decline in the harvest," the bulletin says. - In December, the transfer of the earlier weakening of the ruble into prices also intensified".
It is noted that the consumer sector of the economy maintains positive dynamics, except for the segment of cars and the housing market, where the overheating of demand due to credit was most noticeable.
"Overall, seasonally smoothed GDP growth accelerated in Q4 relative to Q3 (current estimate for Q3: plus 0.4% q/q SA). This may have been partly driven by intensified fiscal spending. In general, GDP growth in 2024 will be closer to the upper boundary of the October forecast of the CentralBank: 3.5-4.0%", - believe analysts of the Bank of Russia.
Interpretation of the budget rule
The end of the year traditionally marks the peak of budget expenditures, and 2024 is no exception, says Renaissance Capital economist Andrei Melashchenko.
- Moreover, the dynamics of non-oil and gas revenues and the current interpretation of the budget rule allowed the Ministry of Finance to channel all unscheduled (exceeding the budget law) non-oil and gas revenues into expenditures, namely to advance part of the spending in 2025," he added.
Alina Karavaeva, senior analyst at Trinfico Management Company, points out that the final federal budget deficit in 2024 amounted to 1.7% of GDP. However, part of the expenditures in December (~0.8 trillion rubles) became an advance for 2025. Given that next year's budget was prepared on the basis of the average key rate of 15.1% (which, according to the interlocutor, is understated and does not reflect the current market conditions), the advanced part may go to cover higher interest expenses than it was planned.
- Growth trends will continue until the maximum capacity utilization," says Yuri Katkov, associate professor of the Finance and Credit Department of the Economics Faculty of the Institute of Economics and Management of the Russian State University of Economics and Management. - It is possible to stabilize overheating of the economy by investments in new production or in productivity increase, which is still difficult due to the high key rate.
Alexander Kotov, a researcher at the Center for Strategic Studies of the PFUDN, believes that the increase in budget expenditures at the end of 2024 stimulated economic growth, but at the same time retained a negative effect on inflation.
-On the one hand, there has been an increase in interest rates, but we can't ignore the benefits for enterprises that will actively invest in the development and expansion of production, because it is at the expense of this that the economy as a whole is boosted," says Yulia Kovalenko, associate professor of the basic department of financial control, analysis and audit of the Main Control Department of Moscow Plekhanov Russian Economic University. - Free economic zones, which are beginning to expand and develop in Russia, will also play a role.
The funds that should have gone to taxes will be used for development and labor remuneration funds, which, in turn, will increase demand for goods, works and services, as well as increase the purchasing power of citizens, believes the interlocutor. However, under such circumstances, it will be necessary to watch the amount of supply, so as not to spur inflation.
Safety margin
According to the Central Bank's forecasts, the normalization of lending and budget in 2025 will slow down the growth of aggregate demand in the economy to more sustainable levels. The dynamics of consumer demand will also be affected, but with a certain delay.
"Keeping the key rate unchanged in December was a positive surprise for the financial market, " the regulator said. - It triggered significant price increases in equity and bond markets and lower credit spreads on high quality corporate bonds. As a result, price monetary conditions have softened".
Andrei Melashchenko reminded that the budget law for 2025 envisages a significant reduction in the fiscal stimulus (by returning to a near-zero structural primary deficit). This implies a tangible reduction in the contribution of the budget component to aggregate demand (economic growth). This year, such a scenario seems more realistic than in 2024, due to the growth of taxes and the absence of plans to use the National Welfare Fund (NWF) to cover the budget deficit, the expert explained.
- For 2025, the deficit may amount to 0.5% of GDP, in 2026 and 2027 - 0.9 and 1.1%, respectively," said Alina Karavaeva from Trinfico. - Credit momentum is also shrinking significantly amid tight monetary conditions. Business expects demand to remain strong in 2025, but also expects a partial slowdown.
Overall, the analyst believes that GDP growth in 2025 could be 1.5-2%. Slower growth is likely to be targeted by the Ministry of Finance through the expansion of the budget deficit or reduction of allocations to the National Wealth Fund. Yuri Katkov, associate professor at the Russian State University of State Economy, believes that the economy risks slowing down to 0.5-1.5% of GDP, while inflation will remain above the target 4%.
Animportant aspect of economic development in 2025 will be the government's support in the field of knowledge-intensive enterprises and research, forecasts the Plekhanov Russian Economic University. These areas will be financed by national projects and grants for research.
Valery Nezamaykin, Head of the Department of Finance and Credit, Faculty of Economics, Institute of Economics and Management, Russian State University of Economics and Management, notes that the need to increase budget expenditures on the defense industry in 2024 required an increase in tax rates, transportation tariffs, increased expenditures at the expense of the National Wealth Fund, export revenues. All this, along with a high key rate, will lead to significant difficulties in lending to the "civilian" part of the economy and slow down its growth, the economist admits.
- Business starts 2025 with tough credit conditions, higher tax burden, reduced benefits and subsidies against the background of difficult external conditions and high level of uncertainty," says Natalia Shuvalova, Associate Professor at the Faculty of Economics of PFUR. - All this creates conditions for a gradual slowdown of the economy, although there is a safety margin formed by the previous years.
Interviewed economists expect that if the government continues to support strategically important industries and more actively create opportunities for the development of small and medium-sized businesses, the GDP growth rate will be 3%. The manufacturing, IT and communications sectors will maintain their growth momentum.
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