As the second anniversary of the Kremlin’s invasion of Ukraine approaches, Russia’s economy, including its asset finance and equipment leasing sectors, is expected to face significant challenges in 2024. Despite a rebound in GDP driven by substantial military spending, the economy is hindered by factors such as population outflow and technology shortages, which are likely to impede economic growth and affect business financing and asset finance leasing.

In 2023, the Russian economy grew by 3.6% following a contraction in 2022, but the International Monetary Fund (IMF) has raised concerns about the poor quality of this growth, particularly emphasizing that increased military production may not necessarily benefit the population. Factors such as sanctions, population outflow, and reduced access to technology further compound the challenges facing Russia’s economic prospects.

The banking sector, however, saw a record-high profit of 3.3 trillion rubles in 2023, a stark contrast to the 200 billion ruble profit in 2022 amidst Western sanctions following the invasion of Ukraine. Demand for mortgages and loans to finance large business acquisitions contributed to this performance, indicating a degree of resilience in Russia’s sanctions-hit economy.

Despite the growth, concerns about overheating persist, prompting the country’s top central banker to raise benchmark interest rates to 16% to cool demand. It is anticipated that both consumer and corporate lending growth will slow in 2024, impacting bank profits.

In the equipment leasing sector, 2023 saw a significant upswing, with a total of 611,000 new leased assets, marking a 40% increase compared to 2022. The computer equipment segment experienced the most substantial surge, attributed to state support measures and increased activity in the construction industry. However, analysts anticipate a slowdown in growth rates for 2024 compared to 2022, with challenges such as a shortage of leased assets due to sanctions, logistics disruptions, and payment chain issues.

Despite these challenges, the leasing market is expected to see growth in 2024, primarily driven by segments such as auto transport, special equipment, and railway vehicles. However, potential hindrances include interest rate increases by the Russian Central Bank and the time-consuming process of localizing production.

Overall, while the leasing market in Russia anticipates growth in 2024, it faces significant challenges and uncertainties, necessitating careful navigation and adaptation to the evolving economic and geopolitical landscape.