For the first time in three decades, the Russian economy may shrink for two consecutive years, inflation may return to the record highs of the early war years, consumers may have to cut back on spending, and the government may face the threat of complete depletion of the National Wealth Fund. This scenario is outlined in the “risk scenario” for economic development over the next three years prepared by the Central Bank of Russia, which assumes that the price of oil will fall to 25-35 US dollars per barrel and Western sanctions will be further tightened.
In the “risk scenario” published by the Central Bank of Russia in the monetary and credit policy guidelines, it is predicted that Russia’s gross domestic product will decrease by 3-4% in 2027 and by another 1.5-2.5% in 2028. The peak of the downturn is expected to be reached in the fourth quarter of next year, when the economic decline will reach 8-9%.
In terms of the scale of the recession, this would be the largest economic downturn since 2009, when the Russian economy contracted by 7.9%. In terms of duration, it would be the worst period since 1995-1996, when the country last experienced two consecutive years of economic decline in recent history, writes “The Moscow Times”.
When would Russia face the black scenario?
This scenario is based on a “sudden deterioration of external conditions,” the scale of which would be similar to the 2007-2008 global financial crisis, notes the Central Bank of Russia. It also anticipates a recession in the US and Europe, which could, for example, be triggered by the bursting of the artificial intelligence companies’ “bubble” on world stock exchanges.
Additionally, it is stated that increased sanctions pressure would increase discounts on Russian goods, as well as reduce oil exports and production.
According to this scenario, the Russian economy would lose 115 billion US dollars in export revenues in the first year of the crisis, and another 57 billion US dollars in the second year. As a result, the total export revenue would decrease to 286 billion US dollars – the lowest level since 2006. Inflation would accelerate to 11-13%, and the Central Bank of Russia would respond by further raising the key interest rate to 19-21%.
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Physical imports to Russia would decrease by 6-8% in 2027 and by 18-20% in 2028, while in monetary terms they would shrink by a quarter over two years. Russian residents would have to tighten their belts even more: private consumption volumes would decrease by 1-2% in the first year of the crisis and by another 5.5-6.5% in the second year.
The Central Bank of Russia notes that a “significant drop in commodity prices” would force the government to “intensively use the liquid part of the National Wealth Fund,” which “would create a risk of rapid depletion of the fund’s resources.” To avoid this, the government would have to reform the budget rule and actually reduce budget expenditures.
Putin was warned
In the spring, senior officials of the Central Bank of Russia, together with representatives of the Ministry of Finance, warned Vladimir Putin about increasing risks to the Russian economy, which has already begun to contract this year.
As reported by “Bloomberg” sources, they drew attention to the unsustainable level of military spending for the budget, due to which the treasury deficit could significantly exceed the plan for the third consecutive year: at the end of July, it amounted to 6.45 trillion rubles.
According to “Bloomberg” interlocutors, Vladimir Putin rejected the position of the financial bloc and instructed to prepare cuts in all budget expenditures except military ones. According to the agency’s data, the Russian Ministry of Finance reduced funding for civilian expenditures by a third and also instructed government agencies to prepare for a 15% reduction in staff, while Putin himself is preparing for further escalation of military actions.
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