Over the acute phase of the crisis, budget spending considerably supported the real sector. The effect of stimulus measures is expected to continue in the first half of the year as well. Further on, the scheduled fiscal policy normalisation will reduce the extent of this influence. Nonetheless, the budget will remain expansionary as compared to the long-term parameters provided for by the fiscal rule. In these conditions, economic growth will continue owing to a further revival of both domestic and external demand. The recovery of domestic demand will be driven by the cancellation of restrictions as the epidemic situation improves, especially in the service sector. External demand will be boosted by a rebound in the global economy. Disinflationary demand-side pressure will thus be decreasing overall. Given the current positive trends, we keep unchanged our forecast of GDP growth at 3– 4% for 2021. Furthermore, the economy may reach its pre-pandemic levels already by late 2021, and not by mid-2022, as we assumed earlier. This will become possible primarily as a result of a less significant decline in 2020. The second factor is inflation. Annual inflation sped up to 5.2% in January, exceeding the Bank of Russia’s target. This elevated inflation rate largely resulted from the pass-through of the ruble weakening and price growth in global commodity markets. According to our estimates, the contribution of the pass-through of the exchange rate movements to annual inflation approximated one percentage point. The contribution of high prices in food markets was slightly lower yet substantial.

Given the monetary policy pursued, inflation will return to the target at the end of 2021 and stay close to 4% further on. I will now speak on possible risks to the forecast. Disinflationary risks do not prevail any longer in 2021. Moreover, this is generally a balance between proinflationary and disinflationary risks over the forecast horizon. Proinflationary risks include, first and foremost, a possible rise in prices in global commodity markets. Second, the epidemic situation remains one of the least predictable factors. Its potential worsening will be the reason why companies’ costs will stay high, with goods transportation problems and production chain disruptions persisting. Third, inflation expectations may remain elevated for a long period of time. Fourth, it is worth emphasising that economic rebound may be uneven and involve local price spikes in individual segments. For instance, as restrictions are lifted in the service sector hardest hit by the pandemic, an increase in demand amid an insufficient rise in supply may become a temporary proinflationary factor. The scale and duration of its impact will depend on a new balance between demand and supply, households’ behaviour, changes in consumer preferences, and the pace of the cancellation of restrictions on foreign travels. Fifth, we still take into account persistent geopolitical risks as they may affect yield trends and inflation and exchange rate expectations. The second group of risks include disinflationary factors. First of all, the fiscal policy normalisation may have a more significant influence on final demand and, accordingly, price movements.