The Central Bank of the Russian Federation has published a forecast of the main macroeconomic indicators for 2020-2023. The regulator has kept the forecast of the main macroeconomic indicators in the framework of the baseline scenario for 2020 and the period of 2021 and 2022, supplementing it with a forecast for 2023.
The forecast is contained in the draft main directions of the unified state monetary policy for 2021 and the period 2022 and 2023, published by the regulator on its website.
The baseline scenario assumes a relatively strong recovery in consumer demand, fiscal consolidation with the federal budget returning to the parameters of the fiscal rule in 2022, as well as moderate consequences of the pandemic on the potential of the economy. In the baseline scenario, monetary policy is likely to remain soft in 2021 and then gradually return to neutrality in the second half of the forecast period as inflation stabilizes on target.
In the baseline scenario, the Russian economy will continue a sustainable recovery in 2021-2022 and will reach its potential output level by the 3rd quarter of 2022, remaining there until the end of 2023.
The return to the level of output corresponding to the 1st quarter of 2020 will occur in mid-2022, the Central Bank said. The negative output gap due to the consolidation of budgetary system expenditures, the effect of restrictions under the OPEC + deal and the incomplete recovery of external demand will persist until the first half of 2022, inclusive, but starting from the 3rd quarter of 2022 it will reach near-zero values and will remain at this level by the end of 2023.
“Accordingly, the rate of recovery growth of the Russian economy will exceed the potential in 2021-2022 and will be close to it in 2023,” the Central Bank notes.
“The gradual closure of the negative output gap will cause the restoration of the quarterly rate of growth in prices in annual terms to 4% by mid-2021 and its subsequent stabilization near 4% until the end of 2023,” the Bank of Russia notes.
As follows from the draft document, oil prices, according to the baseline forecast of the Central Bank, will stabilize at $ 50 / bbl. by the end of 2022. “The conclusion of the OPEC + deal and the return to the shortage in the oil market will help to increase the average annual oil price to $ 50 per barrel by the end of 2022 and stabilize it at this level. At the same time, the recovery in oil prices will be restrained due to the expected gradual increase in oil supply outside OPEC + and the weakening of restrictions on production within the framework of the OPEC + agreements, “the document says.
“If the baseline scenario is fulfilled, as economic conditions normalize and inflation stabilizes near 4%, the Bank of Russia will assess the possible timing and speed of a return from a soft to neutral monetary policy, in which the key rate will be in the neutral range of 5-6% per annum,” – indicated in the materials of the regulator.
Three alternative scenarios have also been developed:
This scenario assumes a significantly slower (than in the baseline scenario) recovery in demand, which may occur if the pandemic continues with a significant level of restrictive measures. A long period of restrained demand will have a downward impact on inflation. This will require keeping monetary policy soft for a longer period of time and possibly further easing it to bring inflation back to target.
The disinflationary scenario envisages a drop in oil prices to $ 35 / bbl. in 2021 and recovery to $ 50 / bbl. already beyond the horizon of 2023, taking into account the high probability of the OPEC + agreement extension.
Based on the dynamics of demand, as in the baseline scenario, but with a significant drop in the potential of the economy. It also contains a scenario assumption that fiscal consolidation may be slower and stretch until 2023. In these conditions, the economy returns to a lower potential already in 2021, and even exceeds it somewhat. In order to keep inflation on track – close to 4% – the Bank of Russia may need to temporarily switch to a moderately tough policy with a subsequent return to neutral by the end of the forecast period.
According to the pro-inflationary scenario, the oil price in 2021 will drop to $ 35 / bbl. and, despite compliance with the agreements under the OPEC + deal, it will grow to only $ 42-43 / barrel. by the end of 2023.
The scenario combines a weak recovery in demand and a significant drop in potential. Additional risks in this scenario are the possibility of a large-scale credit crisis in countries with a high level of public debt, as well as an aggravation of geopolitical risks. A significant increase in pro-inflationary risks will require a temporary significant tightening of monetary policy with a return to soft policy in the second half of the forecast period. Due to the scale of events in this scenario, inflation stabilization on target will take a longer time and will occur somewhat later than 2023.
The risk scenario envisages a drop in oil prices to $ 25 / bbl. and its slow recovery to $ 35 / bbl. by the end of the forecast horizon (by the end of 2023).
Budget: oil and gas revenues
The oil and gas revenues of the federal budget of the Russian Federation in the second half of the year will stabilize at the level corresponding to the base oil price or slightly lower, the Bank of Russia believes.
Non-oil and gas (such as internal VAT, income tax) will continue to decline due to the peculiarities of their payment – they come to the budget with a quarterly delay, according to the draft guidelines for the unified state monetary policy for 2021 and the period of 2022 and 2023 of the Bank Russia.
In the future, a decrease in the rate of social insurance contributions for small and medium-sized businesses from 30% to 15% and the abolition of customs duties on certain goods will make a negative contribution to the receipts of non-oil and gas revenues. In total, 300-400 billion rubles in 2019 prices annually, the document says.
At the same time, in 2021, about 200 billion rubles of additional one-time income will be transferred to the budget in the form of profits from the Bank of Russia from the sale of a stake in Sberbank (MOEX: MCX: SBER).
Also, in 2021-2022, additional income from personal income tax and income tax is expected – up to 300 billion rubles in 2019 prices annually. In addition, the Central Bank expects that the Finance Ministry's plans to increase the collection of tax revenues and customs duties will have a positive effect on budget revenues.
The Bank of Russia expects that the National Wealth Fund (NWF) will begin to receive additional oil and gas revenues in 2023 from revenues generated in 2022, as world prices for Urals oil will return to a level above the base price this year. In 2021, the NWF will finance shortfalls in oil and gas budget revenues. The RF Ministry of Finance has already prepared amendments to the Budget Code, allowing the NWF to be used to finance the deficit of the federal budget and the Pension Fund budget in the amount of no more than 1% of GDP.
The direction of monetary policy (MP) will remain soft for a long time, including taking into account the revised value of the real neutral key rate from 2-3% to 1-2% per annum, the Central Bank emphasizes.
“As the Russian economy recovers and inflation stabilizes near 4% over the forecast horizon, the Bank of Russia will assess the possible timing and speed of transition from soft to neutral monetary policy,” the document says.