The revised forecast from the Central Bank regarding the country’s potential GDP growth by the end of the year may not come to fruition in practice. According to Sergey Grishunin, chief executive of the rating service at the National Rating Agency, speaking to Vedomosti, the core drivers of the economy could slip into recession, and the expected gains from construction and the military-industrial complex might fail to offset the broader crisis. He emphasized that while some sectors could see a rebound, the overall outlook remains constrained by structural adjustments and external pressures that have shaped the economic landscape.
On February 10, the bank’s leadership signaled a cautious optimism. The head of the Central Bank, Elvira Nabiullina, indicated that GDP dynamics could turn positive in the latter half of the year, specifically in the third and fourth quarters. Yet the institution’s overall assessment continues to acknowledge a symmetrical range around stagnation, projecting a potential contraction of up to 1 percent or a 1 percent expansion at the annual level. This balanced view reflects the economy’s sensitivity to evolving conditions both at home and abroad, with upside and downside scenarios weighed against the ongoing adjustment process.
Looking at 2023, Grishunin pointed to a set of essential drivers expected to influence growth. He named progress in construction and in engineering linked to the defense sector, alongside active trade as pivotal contributors. At the same time, resource industries were anticipated to remain in recession as they adjust to the sanctions environment. The NRA’s projection suggested a modest decline in economic activity, around one to one and a half percent by year-end, underscoring the fragility of the recovery path amid external constraints and internal readjustments.
The NRA’s forecast rests on several conditions that could push the economy toward a softer landing by year’s end. Analysts consider the possibility that the Federal Reserve would modify its stance on monetary policy, potentially shifting away from a strategy of rate containment toward a gradual tightening in response to renewed inflation pressures and a growing federal budget deficit. Such shifts could influence productivity across multiple sectors, feeding through to investment decisions and overall demand.
Grishunin argued that tighter monetary policy could dampen investment activity, particularly in the construction sector and related segments of the economy. A tighter credit environment would likely slow project initiation and completion times, reinforcing a negative trend for GDP as capital expenditure cools and firms recalibrate expansion plans. The interconnected nature of construction, engineering, and manufacturing means that slower activity in one area can ripple through related industries, reinforcing the challenge of achieving a clean V-shaped recovery.
In parallel, the bank’s leadership acknowledged the risk that sanctions might intensify in 2023, potentially altering the trajectory of macroeconomic variables. Nabiullina referred to the heightened risk that sanctions could extend further, affecting import costs, export competitiveness, and the broader business climate. Nevertheless, there was recognition of the policy path to inflation control, including the consideration of raising the key rate to target a 4 percent inflation level in 2024, should inflation dynamics warrant a firmer response. The balance between stanching inflation and preserving growth remains a central policy dilemma, with the aim of stabilizing prices without quashing investment.
Amid these uncertainties, the central bank continues to monitor a range of indicators, including inflation momentum, exchange rate volatility, and external financing conditions. The interplay of domestic demand, external shocks, and fiscal considerations will shape the quarterly trajectory of GDP. Stakeholders across sectors are watching for clearer signals on fiscal stability, credit conditions, and the pace of structural reforms, which could alter the pace and profile of growth throughout the year.
Overall, while there is some room for positive growth in the latter part of the year, the balance of risks remains skewed toward slower activity. The central bank’s assessment, alongside NRA projections and policy expectations, suggests that the economy could encounter a modest contraction or a mild uptick, contingent on how global monetary dynamics and sanctions evolve. The coming months will be crucial for assessing the durability of any recovery, the resilience of domestic industries, and the effectiveness of policy measures designed to support investment and productivity while maintaining price stability.