The IMF’s outlook on Russia is too rosy to be true

The Russian flag flies over the Embassy of Russia in Washington
The Russian flag flies over the Embassy of Russia in Washington, U.S., August 6, 2018. REUTERS/Brian Snyder

LONDON, Feb 10 (Reuters Breakingviews) - The International Monetary Fund delivered some uplifting economic news to Vladimir Putin. The Russian president should now make the case to his own government, which doesn’t share the IMF’s optimism. The international body recently estimated that Russia will avoid a recession in 2023 and expand by 0.3% after shrinking by 2.2% in 2022. That amounts to a quasi-stagnation, but still looks too positive.

At first glance, the Fund’s latest forecast is a reason for hope for an economy battered by the cost of its invasion of Ukraine and associated sanctions. And even though the global economic prospects do not look as dire as they did a few months ago, the Russian revision is significant. In October, the IMF was seeing the country’s GDP contracting by 2.3% this year.

The IMF hasn’t detailed the assumptions underpinning its upbeat Russian outlook. Russian economists, polled this month by the country’s central bank, are still expecting GDP to fall by 1.5% this year. And the economy ministry still predicts that output will contract by 0.8%, according to Russian independent publication The Bell.

The key to the IMF’s optimism may be its assumptions about oil prices and the effect of the recent bans and price caps by the European Union and the G7 group of industrialised countries. The measures will not “significantly” affect Russia’s oil exports, the Fund says. That is a matter of intense debate among economists since oil prices remain below the cap set by the G7.

Much will depend on the evolution of oil prices this year. Oil and gas exports amounted to about 15% of Russia’s GDP in 2021, and related taxes finance more than 40% of the government’s budget. Urals , the Russian crude, trades at around $56 a barrel. The discount to benchmark Brent is now at 33%, against 7% before the war. That is a sign that sanctions have had some impact. It also throws further doubt on the IMF’s optimism.

In October, Russia’s central bank predicted that the domestic economy would contract by between 1.5% and 4% this year. That assumed a $70 a barrel price for Urals – the same number the government used for its budgetary planning. Four months later, the world economy has brighter prospects and Russia may be more resilient than expected. But only a serious oil price rally, improbable in the context of the global economy’s “subpar growth” - to quote the IMF - could justify looking at Russia through rosy glasses.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates to add graphic.)


The Central Bank of the Russian Federation is meeting on Feb. 10 to decide whether to change its key policy rate, set at 7.5% since September.

The International Monetary Fund said last month that it predicted the Russian economy to grow by 0.3% in 2023 after shrinking 2.2% last year. GDP should grow by 2.1% in 2024 - or half the pace of other emerging markets and developing economies, the IMF said.

Editing by Francesco Guerrera and Streisand Neto

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