Economic growth slows in June but is likely to return to previous trajectory

RUSSIA ECONOMICS - In Brief 01 Aug 2024 by Evgeny Gavrilenkov

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Rosstat reported that in 1H24, the output of the five basic sectors (industry, agriculture, construction, trade, transportation) grew by 5.8% y-o-y. In June alone it was up by a mere 2.5% y-o-y. June brought down the 1Q24 y-o-y to 4.8%. The economy has seemingly slowed markedly in June, however, this deceleration looks like a one-off effect that stemmed from fewer working days in June 2024 compared to June 2023. This difference (2 days) affected almost all segments of the economy and to some extent can be a counterbalance for February’s leap year effect. At this stage we do not change our 2024 GDP growth forecast (4%) but may do so later on. It looks as though some potential for upside emerges. Meanwhile, the CBR recently upgraded their 2024 growth forecast to 3.5%-4.0% (having also raised the inflation forecast – up to 7% as the upper boundary). It looks as though inflation will also be visibly higher this year implying a higher nominal GDP figure. The latter means a broader tax base and better fiscal performance. Looking at particular segments of the economy one can see that in 1H24 the industrial output grew by 4.4% y-o-y, agriculture delivered a mere 0.9% y-o-y growth and we do not expect the latter to look much better in 2024 as a whole as agriculture is usually a moderately growing segment. Retail and wholesale trade grew by 8.8% and 8.4%, while paid consumer services were up by 3.8% (also y-o-y in 1H24). Construction was up by 3.9% y-o-y over the same period and may gradually decelerate going forward amid higher interest rates and more moderate demand for mortgages. Retail sales may be less affected by higher interest rates as nominal wages grew by 17.8% y-o-y i...