Russian banker forecasts slowdown in sanctions-hit economy by 2025
Andrei Kostin, CEO of VTB, Russia’s second-largest bank, warned in a recenyt interview with Reuters that the country’s sanctions-hit, militarised economy is expected to slow down in 2025, with banks’ profits facing a downturn. He also projected that the benchmark interest rate could rise to 23% by the end of this year.
Kostin anticipates that Russia’s GDP growth will slow to 1.9 per cent in 2025, surpassing the International Monetary Fund’s (IMF) forecast of 1.3 per cent. The Russian government expects a 3.9 per cent growth for 2024. Inflation, currently at 8.5 per cent, is expected to decrease to 6.4 per cent, Kostin added.
“The war has been going on for almost three years, and a huge number of sanctions have been imposed. We are living in an absolutely unusual situation,” Kostin told Reuters in an interview late last week. He noted that one-third of the state budget is allocated to the military.
Despite the challenges, he pointed out that Russia has managed to sustain economic growth over the past three years, maintaining overall economic health. The “country has been living for three years, there is economic growth, and overall a healthy economy,” he said.
Kostin expressed concerns over the central bank’s tight monetary policy, suggesting that the current inflation rate does not warrant such a high benchmark interest rate, “three times this level.”
“I am, of course, not as much of a monetarist and believe that an inflation rate of 8.5% is not so critical for Russia, it could be tolerated,” he added.
Interest Rate and Sanctions Impact
Kostin highlighted that Western sanctions as well as increased military spending, state subsidies on loans, and high inflation expectations have made the current high interest rates less effective. “In the context of high military expenditures and sanctions, an instrument like the key interest rate may not be fully effective in managing inflation,” he stated.
He also forecasted that the ruble would stabilise at around 100 to the US dollar after a period of volatility. The ruble fell by 15 per cent against the dollar following US sanctions on Gazprombank, Russia’s third-largest lender, which managed Russia’s energy trade with Europe.
With the current interest rates, Kostin predicted a slowdown in overall lending growth to 10 per cent in 2025, down from 20 per cent in 2024. He also warned that Russian banks would see lower profits in 2025, with VTB’s earnings set to drop by 27 per cent.
Despite these economic pressures, Kostin did not foresee widespread bankruptcies in sectors like coal mining or real estate. “We do not see the situation of 2008, when major companies collapsed. I do not see any companies that are currently feeling completely bad,” he concluded.
Attribution: Reuters
