Russia’s economic growth to slow in 2024 as high interest rates linger: Reuters poll By Reuters

By Alexander Marrow

(Reuters) – Russia’s economic growth is set to slow in 2024, hampered in particular by double-digit interest rates throughout the year as the Bank of Russia seeks to subdue stubbornly high inflation, a Reuters poll showed on Friday.

Russia’s gross domestic product is expected to outperform early expectations and grow 3.1% this year, the average prediction of 15 analysts and economists polled by Reuters showed, rebounding from a 2.1% contraction in 2022.

But in 2024, growth, which has been boosted this year by soaring government spending, particularly on increased military production, is expected to slow to 1.1%.

High interest rates are weighing on growth prospects. The Bank of Russia raised its key interest rate to 16% last week and though it said the rate hiking cycle was near completion, borrowing costs are set to remain elevated for several quarters.

“The rate is now, of course, prohibitive,” said German Gref, CEO of dominant lender Sberbank, planning for rates still above 10% at the end of next year. “It has sharply reduced not only corporate lending, but even consumer lending.”

The poll showed analysts expect rates at 12% by end-2024.

“We believe the opportunity to lower the key rate will only open up in the middle of next year, when inflation will steadily slow down,” said Mikhail Vasilyev, chief analyst at Sovcombank.

Inflation, which the central bank targets at 4%, is seen ending this year 7.6% and slowing to 5.4% by end-2024.

Soaring prices for eggs led President Vladimir Putin to issue a rare apology last week, as the country’s poorest struggle with painful price increases.

Inflation is one of several economic challenges facing Putin as he seeks re-election in March, although Russia’s success in evading a Western oil price cap is helping ease the burden.

The rouble’s weakness has fuelled inflation this year and analysts give the Russian currency slim hopes of strengthening meaningfully in 2024, expecting the rouble to trade at 100 to the dollar a year from now, slightly weaker than in last month’s poll. The rouble traded close to 92 on Friday.

“We believe the rouble will strengthening against major currencies in January due to the seasonal decline in demand for foreign currency at the start of the year,” Vasilyev said, then anticipating steady depreciation.

(Reporting and polling by Alexander Marrow; Editing by Tomasz Janowski)