The head of the Ministry of Economic Development spoke in the genre of optimistic realism

Speaking at the first session of the autumn parliamentary session for the upper house on Wednesday, Economic Development Minister Maksim Reshetnikov voiced a forecast for the next three years. He turned out to be quite optimistic. However, experts considered the estimates of the Ministry of Economics quite realistic. They build the draft budget for the next three years.

We still have something to sell

The department sees good prospects for exports. Moreover, the emphasis is not on hydrocarbons.

“Exports next year will slow down the decline in real terms, in 2024-2025 they will return to growth. First of all, due to non-oil and gas exports. We also take into account the plans of the Ministry of Energy to reorient oil and gas exports to neutral countries,” Reshetnikov said.

According to the head of the analytical department of AMarkets Artem Deev, export growth is indeed possible. First of all, at the expense of the agro-industrial complex – agricultural products from our country are in high demand on international markets, and the restrictions on the export of certain items introduced earlier by the Ministry of Agriculture will most likely be revised in the future. For example, restrictions on grains and oilseeds were introduced this year due to the need to replenish their stocks.

“The export of metals may also increase – now the sanctions have significantly reduced supplies abroad in this direction. As for the oil and gas sector, everything will depend on how quickly our country manages to build the necessary infrastructure (a gas pipeline to China, for example) or provide additional capacities for transporting oil by sea),” Deev said.

As Denis Paleev, PhD in Economics, Associate Professor of the Faculty of Economics of the Peoples’ Friendship University of Russia, adds, the restoration of the oil and gas component will be associated with the reorientation of hydrocarbon exports from Europe to the markets of Asia and the Middle East. According to Bloomberg, at least half of Russian oil will find new buyers in Indonesia, Pakistan, Brazil, South Africa, Sri Lanka, Saudi Arabia, Kuwait. These countries are ready to buy our energy resources at a discount and sell theirs at full price. LNG exports to Japan are on the rise.

“Undoubtedly, China will become our main buyer, but the problem is the lack of transport capacity. In the coming years, logistics will be actively rebuilt. The new Power of Siberia 2 gas pipeline will replace Nord Stream 2, the Pakistani Stream will appear, and the new Kovykta field in Eastern Siberia will be put into operation. These projects will make it easier to enter new markets,” the expert says.

However, there is a second problem, Paleev notes: a possible decline in production due to technical problems. Import substitution of equipment and technologies also takes time.

“In Russia, there is an understanding of the need to deepen the processing of minerals. Petroleum and gas chemistry products with high added value will also be exported, but at the next stage, when it will be possible to solve the problems of processing,” says Associate Professor of the Faculty of Economics of RUDN University.

He believes that in a two-three-year perspective, we should rather talk not about growth, but about the restoration of exports at the pre-crisis level due to reorientation to new markets. It should be taken into account that high prices allow us to sell less oil and gas, but earn more, and this increases the amount of exports in monetary terms.

Investment optimism

In general, the Ministry of Economic Development believes that the Russian economy will quickly adapt to changing conditions. According to Reshetnikov, this scenario is the basis of the forecast, which assumes that the economy will contract by 0.8% in 2023, mainly due to the effect of a high base in the first quarter of this year and a decrease in net exports. At the same time, the Russian economy will pass its lowest point of recession in the fourth quarter of this year, and according to the results of all 12 months, it will amount to 2.9%.

At the same time, a key element of an optimistic design is investment. The Ministry of Economy expects that this year they will decrease by 2%. The decrease is rather symbolic, in the department it is associated with the accelerated completion of a number of existing projects. However, rapid growth is expected in the coming years.

“In the second half of the year, we are unlikely to be able to contain such positive dynamics. Therefore, we expect some decline in the whole year. But we think that it will be within 2%, given the current situation – very, very good. There will be a recovery process next year, but for now we also expect to be in a slightly negative zone. But from 2024, we will resume, after all these projects and new inputs for the economy, we expect investment growth, and this growth will outpace GDP growth, since we expect growth due to investment,” Reshetnikov said.

According to Artem Deev, the expected growth in investments is likely to be ensured by the inflow of funds to the domestic stock market, investments of institutional and retail investors in OFZ. The Ministry of Finance has repeatedly stated that this channel may eventually become the main one.

At the same time, as Denis Paleev notes, the joint report of the Ministry of Finance and the Bank of Russia at the strategic session on August 30 testifies to the special role of state and pension funds. It is proposed to allow the use of pension savings, which were frozen in 2014, although the mechanism is not yet clear. The possibility of increasing taxes to fill the budget is not ruled out.

After the crisis, there always comes a period of recovery with the growth of business activity and GDP to its original values, the economist is sure. GDP is the value of the final product produced in a country. Import substitution involves the development of production in Russia. Ordinary consumers may not notice the replacement of one producer by another, but from an accounting point of view, this will give economic growth.

“Of course, these projects will require investments, and they have already begun to grow. For the second quarter of this year, they increased by 4.1%. This happened due to large budget allocations to the economy, and this trend will continue, ”says Paleev.

He adds that an increase in domestic private investment is also expected. To stimulate them, subsidies are introduced for the purchase and leasing of equipment, exemption from VAT, payment deferrals.

“The mechanism of investment contracts, which has proven itself in the past, is preserved. Much is being done to coordinate the work of public and private companies, in particular, a new service, the Import Substitution Exchange, and other tools that simplify the implementation of joint investment projects have been launched,” the expert adds.

Screenplay for a production film

The Ministry of Economy predicts that in 2022 inflation in Russia will be 12.4%, and in 2023 it will slow down to 5.5%.

“Inflation will slow down: after a peak of 17.8% in April, we expect a decline to 12.4% by the end of the year,” the minister said, speaking at the Federation Council.

As Denis Paleev notes, strong inflation at the beginning of 2022 is gradually declining, each subsequent official annual inflation forecast turns out to be better than the previous one. Many factors influence this.

“For example, for many years, banks used the money they received to buy foreign currency and foreign assets. All this had a negative impact on the ruble. Now the capital flight has been greatly reduced, cash flows instead of financial assets went to large government orders and the development of real production, ”the expert argues, adding that the government is talking about a moderate deficit budget for 2023.

Summing up, the Associate Professor of the Faculty of Economics of RUDN University notes: “All these are rather positive trends, however, the presented scenario should be considered optimistic, it is possible if several key tasks can be successfully solved: to prevent a decline in production and mass unemployment, to maintain effective demand of the population. So far, the government manages to keep the situation under control, but a lot depends on external factors, the development of the political situation in the world, so the forecast of the Ministry of Economy should be considered nothing more than one of the possible scenarios, although quite probable.”

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