Sluggish progress persists in economic expansion
Brace Yourself, Business Pals!: Here's the lowdown on the latest economic chitchat from our trusty experts.
Now, our pals at Gazprombank's Economic Forecasting Center have got some grim news about business confidence in the consumer sectors. Turns out, things ain't looking too hot in the car production, furniture, and clothing industries. Why? Well, it seems like folks are cutting back on spending. Yup, you heard right – the population's saving more and borrowing less. And you guessed it, all this stinginess has led to a consistent drop in sales of durable non-food goods over the past quarter.
But don't go popping the champagne just yet, processing companies are still dealing with issues surrounding labor resource availability and assessing it as insufficient.
And guess who's feeling a teensy bit more optimistic? Yep, the extraction sector, baby! They're tackling disheartening global assessments like total bosses. But hey, that's nothing compared to 2024 and 2023, when things were looking pretty rosy in the processing sector.
So there you have it, folks! The economy's slowing down, GDP growth rates in 2025 will be lower than in 2023-2024, and economic cooling is becoming increasingly apparent. Boo-hoo, right?
But hey, let's pour one out for the "overheating" skeptics. It seems like they're finally getting their wish – high interest rates are decreasing demand for durable goods, and that's cause for concern for processing industries.
Meanwhile, back at the ranch, some experts are arguing that the "key" rate is jacked up way too high for the current economic parameters. They point to data suggesting that capacity utilization isn't anywhere near as high as the Bank of Russia believes. So, supply constraints may not be as significant as once thought.
Speaking of the Bank of Russia, they're expecting to start easing the interest rate focus by July 25, probably dropping it down to 19-20%. But if the economic situation starts heading south or Russia-US negotiations yield significant progress, they might start slashing rates as early as June 6.
Our pal over at Sovcombank thinks we're looking at a "soft landing" after overheating. Food prices and services are both still rising at double-digit rates, which suggests that the CB needs to keep those tight monetary conditions coming to align demand with supply capabilities. They're with the CB on that one – they believe it's better to fight inflation now rather than risk another price surge down the road.
In summary, the economy's cooling off, and there's a growing risk that it may chill out more than expected. Global economic risks and the effects of prolonged ultra-tight monetary policy by the Bank of Russia are causing the chill. But, on the bright side, a likely weakening of the ruble and increased oil production quotas should provide some support to export-oriented sectors.
Now, let's take a closer look at those main factors of uncertainty. Falling oil and other commodity prices could lead to a weaker ruble and higher inflation, but progress in geopolitics could result in a stronger ruble, faster inflation slowdown, and quicker reduction in key interest rates.
Finally, experts are seeing improvement in entrepreneurial confidence in the extractive industry, but the processing sector is taking a hit. Yet, leading indicators suggest the economy will continue to slow, but growth will persist, with the consumer segment providing support. Keep in mind that this support will be stronger in the second half of the year due to key rate cuts and some recovery in consumer credit activity.
In other words, it's too early to make much of a call about a sustainable slowdown in the economy. Some indicators are pointing to economic activity normalizing after an overly strong Q4 2024, while others suggest it's still too early to tell.
So there you have it! A taste of the latest economic news. Stick with us to stay ahead of the game!
**Bonus Information:**
- Russia's consumer confidence and economic activity in Q1 2025 show mixed signals, with moderate retail growth (4.6% year-on-year, in line with Q1 2024 trends) alongside persistently high inflation expectations
- Price growth moderation: Annualized inflation dropped to 8.3% in Q1 (seasonally adjusted) from 12.9% in Q4 2024, driven by tighter monetary policy and ruble appreciation, but core inflation remained elevated at 8.9%
- Rate hold: The Bank of Russia maintained its key rate at 21% to combat inflation, but disinflation remains fragile and dependent on prolonged restrictive policies
- Inflation expectations: Households and businesses report unchanged, elevated expectations, slowing the pace of disinflation despite cooling demand in durable goods segments.
- The economic parameters, as observed by some experts, suggest that the key rate established by the Bank of Russia might be excessively high for the current economic conditions, potentially causing a strain on the processing industries.
- Despite the global economic slowdown, there exists a disagreement among experts about the general direction of the economy, with some optimistically predicting a 'soft landing' after the period of overheating, while others remain uncertain about the possibility of a sustainable slowdown.
- The educated consensus among the experts consulted is that the cooling economy poses a risk of additional chill, due to the influence of global economic risks and the continued tight monetary policy implemented by the Bank of Russia.
- Gazprombank's Economic Forecasting Center has reported a decrease in business confidence in consumer sectors, citing a consistent downturn in sales of durable non-food goods due to reduced spending among the population, which might have a profound impact on finance-related aspects of related business activities.
