Russian macro: economy challenged by geopolitics and deteriorating demographics

RUSSIA ECONOMICS - Report 04 Oct 2022 by Evgeny Gavrilenkov and Alexander Kudrin

According to Rosstat, the output of the five basic sectors (industry, agriculture, construction, trade, and transport) in 8M22 was down y-o-y by 1.8% and 0.4% in August and 8M22, therefore, indicating that the economy was heading to moderate conduction in 2022 as a whole. In the current geopolitical environment that remains increasingly “unfriendly” for the Russian economy and can only deteriorate in the future, any long-term growth outlook can’t be anything else but a guessing game. The economy’s capacity to weather new storms on the horizon seems to be much more limited than earlier in the year, especially as the partial mobilization announced at the end of October certainly didn’t improve the people’s sentiment and the business climate in the country.

Negative demographic trends that strengthened during the pandemic can only continue in the current situation as many Russians decided to flee, especially after the partial mobilization was announced. As these people are generally well-educated professionals and potentially active consumers and borrowers, consumer demand and demand for loans consumer loans will be affected. As known, Russia’s birth rates have been shrinking for years, and in the current uncertainty, this trend can only aggravate and negatively affect longer-term economic trends.

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