Russian macro: GDP—uneven performance by sector amid ongoing structural changes
In the aftermath of Rosstat’s publication of regular economic statistics that looked decent in 1Q24 and 4M24, June appears to be a month with some negative surprises. Persistently high (and even accelerating) inflation is one of them. The statistical agency reported that the MTD inflation reached 0.36% as of June 17, which brought the YTD tally to 3.59% (in June 2023 as a whole, inflation was 0.37%). There are no signs of inflation deceleration yet—even though the ruble continues to appreciate amid the increased volatility imputed by recent sanctions on Moscow Exchange. Rising inflation in 1Q24 has already caused Russia’s nominal quarterly GDP to soar. In 1Q24, it reached R43.240 trln and was up by 19.5% y-o-y. Our recent simulations show that Russia's GDP may well exceed R200 trln this year. As the ruble’s pirouettes will continue for some time and the Russian currency will remain abnormally strong before it weakens back to levels seen earlier this year, its average annual value may be about USD/RUB 90, implying that dollar-denominated GDP could once again reach $2.3 trln, as unnaturally high a number as in 2022, when the ruble strengthened abnormally after Russia/West ties were irrevocably cut. In the years to come, dollar-denominated GDP will diminish again.
Looking at a sectoral breakdown of GDP growth, one may conclude that tipping points have been reached in some segments, such as mining. This segment will not return to the previous growth trajectory seen up to 2020. The government administration and defense segment is also on the verge of reaching its own tipping point, followed by much more moderate growth. Growth in the manufacturing segment will likely moderate at some point as well, as government demand for certain goods cannot grow fast indefinitely. We believe that GDP could grow by about 4% this year (and even faster, as recent statistics look decent and support this view), but growth will moderate visibly next year.
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