Central Bank of Russia notes continuation of economy overheating in Q4 2024, expects growth of 2.9% in Q1 2025

MOSCOW. Feb 26 (Interfax) - The Central Bank of Russia calculates that the country's GDP grew 3.3% year-on-year in Q4 2024, and the corresponding estimate is contained in the Central Bank's commentary published on Wednesday to its medium-term forecast published on February 14.

The CBR expects growth of 2.9% year-on-year Q1 2025, with a further slowdown to 0.0%-1.0% in Q4 2025.

The CBR said in a summary of the key rate discussion published simultaneously on Wednesday that the overheating of the Russian economy in Q4 2024 has not eased.

"The participants in the discussion concluded that the scale of economic overheating did not decrease in the fourth quarter of 2024. This is indicated by significantly increased inflationary pressure and continuing stress in the labor market, as well as model estimates of the scale of economic overheating presented by the divisions," the bank said.

"Economic growth [of 4.1%] in 2024 was higher than the CBR's October forecast [of 3.5%-4.0%]. This was owing to stronger domestic demand that remained the main driver of economic growth," the CBR said.

"The Federal State Statistics Service (Rosstat) has not yet clarified quarterly GDP data after the publication of annual data. Economic growth could have accelerated in Q4 2024 judging by operational data and surveys. The economy received an impetus for growth, including because of increased budget spending during the period. Meantime, according to estimates, growth in consumer demand slowed in Q4 2024, as facilitated by the cooling of retail lending in the second half of 2024 with a continuing increase in savings activity," according to the summary of the economic situation in Q4 2024.

"Participants noted that the decline in consumer demand is still slow in the conditions of rapid income growth. Investment activity remained high in Q4 2024. In addition to budget incentives, it was supported by the high financial results of companies, including those accumulated over the previous two years. However, there has been a tendency towards a decrease in the financial result since the summer of 2024, sliding over the past 12 months, which should encourage businesses to optimize their investment plans and reduce costs. Surveys show that companies are already reducing investment demand and postponing the implementation of new projects," the bank said.

"The participants in the discussion noted that the shortage of personnel remains the main factor limiting the expansion of supply. However, stress in the labor market has ceased growing. The share of enterprises experiencing a shortage in personnel has been decreasing for several months in a row. The number of vacancies is decreasing, and the number of resumes is growing," the Central Bank said about the situation in the labor market.

As reported, the Central Bank on February 14 raised its forecast for growth in Russia's GDP to 1.0%-2.0% in 2025 from 0.5%-1.5%, while simultaneously lowering its forecast for growth to 0.5%-1.5% in 2026 from 1.0%-2.0%.

"The forecast range of real GDP growth rates in 2025 has been increased by 0.5 percentage points to 1.0%-2.0% primarily owing to an expected smoother slowdown in consumer activity and a more substantial recovery in inventories than forecast in October. Meantime, the forecast range for 2026 has been reduced by the same amount to 0.5%-1.5%. The forecast for both consumer and investment demand has been revised slightly downward. In general, the vision of the dynamics of economic activity in the medium term is unchanged. As the effects of tightening monetary conditions accumulate and fiscal policy normalizes, the economy returns to a balanced growth trajectory. Meantime, given the higher than expected in October growth of domestic demand at the end of 2024, the updated forecast shows a more gradual cooling and its bottom point has shifted toward 2026. The accumulated GDP growth in total over the three-year forecast horizon is close to the October forecast," according to commentary to the forecast.