Russian macro: adapting to regular shocks – Russia’s new reality
The Russian economy once again proved that it is quite resilient to shocks as the GDP contraction this year appears less significant than the broad consensus expected right after the start of the special military operation. The country’s authorities recently mentioned that GDP could contract by 2.9% this year, followed by a minor contraction in 2023. From 2024, the government expects much brighter prospects, strong economic growth, and other sweet things that governments promise to fellow citizens (voters, or their subjects, depending on the countries’ realities) in the distant future. Therefore, it makes sense to take a closer look at household consumption trends as consumption is the major part of GDP. If we look at long-term historical trends and associate Russia’s household consumption with retail sales and other monthly indicators such as consumption of paid services and spending on eating at restaurants, then some weighted combination of retail sales and consumption of paid services would give a decent approximation of overall consumption, especially in recent years, when consumption has become more simplified (people traveled less in the past three years, spent less on restaurants amid restrictions, etc.). It looks as though household consumption contracted y-o-y by around 6% (or slightly more) in 3Q22 and the figure for 4Q22 could be the same.
If one assumes that Russia's GDP should indeed contract by 2.9% in 2022 as a whole, then its y-o-y contraction should be around 6% in 4Q22 as follows from the 1H22 GDP statistics and a flash estimate of its growth in 3Q22. Even though this more or less matches the estimated decline in household consumption, one should keep in mind that public consumption will be up this year. Indeed, the expenditures of the 2022 budget were amended significantly. Investment in production capacity will also increase in 2022. If one ignores such a relatively small variable as inventory accumulation, then the mystery should be hidden in net exports. We will cover this issue in our next report, along with an updated economic forecast.
Now read on...
Register to sample a report