Russian central bank says economic downturn to deepen in Q3

MOSCOW – Russia’s financial contraction will deepen within the third quarter of 2022, whereas its robust present account surplus, the important thing driver of the rouble’s latest rebound, will shrink within the second half of this 12 months, the central financial institution stated on Monday.

Russia’s export-dependent economic system is plunging into recession after Moscow despatched tens of hundreds of troops into Ukraine on Feb. 24, triggering sweeping monetary and financial sanctions from the West.

Gross home product will fall by 7% within the third quarter after contracting by 4.3% within the second quarter, the central financial institution stated, projecting the economic system will begin recovering within the second half of 2023.

“In accordance with the Financial institution of Russia’s up to date forecast, the contraction in 2022 might be much less deep than anticipated in April. On the identical time, the influence of provide shocks could also be extra protracted over time,” the central financial institution stated in a report on financial coverage.

In 2022, the economic system will shrink by 4-6% and by 1-4% in 2023 earlier than returning to progress of 1.5-2.5% in 2024, the central financial institution stated, reiterating a forecast it voiced when slashing its key rate of interest to eight% in July.

The central financial institution additionally stated it anticipated the finances rule, which caps Russia’s finances spending and diverts extra oil revenues into its rainy-day fund, to be reinstated by the finance ministry from 2023 in its base case state of affairs.

Purchases of international foreign money underneath the finances rule, designed to replenish state reserves by shopping for FX when oil costs are excessive, had been suspended when the rouble weakened sharply in January weeks earlier than Feb. 24.

The brand new finances rule, which is but to be revealed by the finance ministry and permitted by President Vladimir Putin, is anticipated to place draw back strain on the rouble, which has turn out to be the world’s best-performing foreign money this 12 months because of capital management measures.