Russian macro: economic growth to moderate in 2024
The country’s economic situation appears decent, as Rosstat reported that the output of the five basic sectors grew by 4.2% y-o-y in 8M23. This indicator is a kind of monthly proxy of economic activity, as it covers over 50% of GDP and comprises industry, agriculture, construction, trade, and transportation. In August alone, these basic sectors combined grew by 7.3% y-o-y. Basic sector output dynamics do not necessarily precisely match GDP growth, but their accuracy is sufficient to grasp tipping points and general economic trends. The Ministry of Finance reported that the federal budget was in deficit in 9M23, albeit the deficit was narrower than in 8M23 (R1.7 trln versus slightly below R2.4 trln according to 8M23 data). This means that the budget was in surplus in September (which occurred for the second month in a row). Both oil-and-gas and non-oil-and-gas revenue collection improved, which is another sign that the economy is not yet collapsing even as pressure from the Western sanctions regime mounts. It looks as though the share of oil-and-gas revenue in the federal budget won’t exceed 29% in 2023 as a whole, implying reduced dependence of the federal budget on oil prices (in 2021 and 2022, oil-and-gas revenues accounted for 35.8% and 41.6% of the total revenues of the federal budget). The fact that the share of oil-and-gas revenues in the total federal budget revenues is falling means that not only the budget but also the economy in general has become less vulnerable to external shocks as domestic demand has grown in importance as a factor of economic growth. GDP may still grow by 2.5% this year, despite some m-o-m deceleration of growth seen in recent months as government spending is due to increase in October and 4Q23, which will somehow boost domestic demand partially in 4Q23 and in 2024—depending on the amount of allocated budgetary funds by month.
In 2024, GDP growth will decelerate because in addition to budgetary stimuli, rapid credit expansion in 2023 helped stimulate consumption and economic growth. However, these two channels produced overheating in the economy and caused inflation to accelerate. In 4Q23, credit growth will decelerate amid higher interest rates, and this moderation will continue into 2024. Hence private consumption growth will also moderate next year. This will trim imports, and net exports (as an SNA category) may offset decelerating private consumption in 2024.
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