Economy grows at decent pace and remains overheated

RUSSIA ECONOMICS - In Brief 02 Nov 2023 by Evgeny Gavrilenkov

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Rosstat reported that in 9M23, the output of the five basic sectors grew by 4.8% y-o-y. In September alone, it grew by 8.9% y-o-y - largely due to a low base effect. The industry grew by 3.3% and 5.6% over the same periods (both numbers are y-o-y). Agriculture moved from negative territory to positive amid a delayed harvesting season. It grew in 9M23 by 1.3%, and in September alone, it delivered an impressive 12.7% y-o-y growth. On the consumer side, the situation also looked not too bad as in 9M23, retail sales grew by 4.7% y-o-y, and consumption of paid services increased by 4.2% y-o-y. The economy can grow close to 3% this year (if not higher, as some statistical data are being constantly revised – mostly up). The problem is that this growth may appear unsustainable as household consumption becomes increasingly dependent on bank lending. In September, credits to households again grew by an astonishing 2.9% m-o-m, having decelerated from 3.2% m-o-m in August. As of October 1, bank lending to households increased by 18.3% YTD and 22.4% y-o-y. Inflation remains high as a result. In October, it could still be below 0.9% m-o-m as Rosstat reported that on September 30, inflation MTD reached 0.83%. The final inflation print for October as a whole won’t differ much from this number, meaning that by year-end, inflation could well exceed 7.0% and challenge the 7.5% benchmark.