IMF raises Russia growth outlook as war boosts economy

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Russia’s economy will expand much more rapidly this year than previously expected, according to the IMF, as President Vladimir Putin’s military spending feeds through into wider growth. 

Gross domestic product is forecast to rise 2.6 per cent this year, more than double the pace the IMF predicted as recently as October, and slightly slower than the 3 per cent expansion estimated for 2023.

The Russian upgrade, by 1.5 percentage points, is the largest for any economy featured in an update to the fund’s World Economic Outlook, released on Tuesday.

The figures will raise fresh questions over the effectiveness of multiple rounds of western sanctions aimed at depressing the fiscal revenues harvested by the Kremlin to finance its war in Ukraine.

The IMF’s prediction paints a stronger picture of the Russian economy’s immediate outlook than even the Kremlin’s own forecasters. Russia’s conservative central bank forecast growth of just 0.5-1.5 per cent in 2024 last November, a drop from 2.2-2.7 per cent in 2023. 

The more bullish economy ministry has said growth in 2023 may reach 3.5 per cent but expects a smaller rise of 2.3 per cent this year. 

Pierre-Olivier Gourinchas, the IMF’s chief economist, said the new projections remained “somewhat preliminary” as the fund’s economists attempted to validate Russian statistics.

“It is definitely the case that the Russian economy has been doing better than we were expecting and many others were expecting,” he told the Financial Times in an interview. 

This could be explained by the strong stimulus provided by government spending in the Russian “war economy”, he said. Firm commodity prices were helping to hold up fossil fuel-related export revenues and were an important contributor to overall activity. 

But Gourinchas warned that in the longer term the potential growth of the Russian economy was likely to be lower than before the full-scale invasion of Ukraine almost two years ago. 

Putin, who traditionally leaves macroeconomic policy to his technocrats and has shown even less interest in its finer points since the invasion, has himself predicted that growth will rise even above Russia’s official forecast. 

The Russian president has said GDP growth for 2023 could rise above the 3.5 per cent prediction and potentially even past 4 per cent. “It’s constantly being calculated, so there might be more GDP growth,” Putin told an audience of businessmen in Khabarovsk this month. 

Putin said the country’s economic performance was “an amazing result. They are supposed to be smothering and pressuring us from all sides.”

A week later, Putin claimed Russia’s 2023 growth was “founded foremost on domestic consumer and investment demand”, which he said included record spending on construction as well as industry, agriculture, tourism, and freight transport.

But senior economic officials warned the spending could be overheating the economy. “If you try to drive faster than the car’s design allows and step on the gas as hard as you can, then the engine will overheat sooner or later and we won’t get far. We might go fast, but not for long,” central bank governor Elvira Nabiullina said in December.

The fund’s predictions for Russia’s economy are stronger than those of the World Bank, which earlier this month said it expected growth of 1.3 per cent in 2024 and 0.9 per cent in 2025. 

The analysis came as the IMF upgraded its forecasts for global growth this year by 0.2 percentage points to 3.1 per cent in an update to its October outlook. Growth is expected to hold firm at 3.2 per cent in 2025, it added. 

The improved global outlook comes as inflation falls more rapidly than expected in most regions, meaning the likelihood of a “hard landing” — in which elevated borrowing costs induce a sharp slowdown — for the world economy has receded further. 

“Inflation is falling faster than expected in most regions, in the midst of unwinding supply-side issues and restrictive monetary policy,” the IMF said. It predicted global inflation would fall to 5.8 per cent in 2024 and 4.4 per cent in 2025.

Additional reporting by Anastasia Stognei in Riga

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