Russian macro: The new reality—looking at what kind of economy emerges in Russia
Rosstat reported that the output of the five basic sectors grew by 3.6% y-o-y in 7M23, and in July alone it was up 7.1% y-o-y. There numbers don’t look extraordinary amid last year’s low base effects but rather indicate that the economy is doing relatively well despite some signs of a deceleration of growth in several segments. Manufacturing was one such segment. One can often read in the mainstream media that the Russian economy is now demonstrating a kind of a re-emergence only (or mostly) due to increased government spending to finance some of its activities. Indeed, this has been the case, but it cannot be the only factor that prevented a recession in the Russian economy. If one looks at a bit broader and more detailed picture, the available 7M23 statistics indicates that the economy is doing not too badly in many sectors. For instance, agriculture grew by 1.4% y-o-y in 7M23, which also looks good amid last year’s exceptional grain harvest and the strong performance of agriculture in general. It grew by 6.7% in 2022 as a whole; some contraction of agricultural output this year could appear normal. On top of that, Rosstat reported that investment in production capacity grew by 7.6% y-o-y in 1H23. Construction grew y-o-y by 8.7% and 6.5% in 7M23 and July alone, and is one of those sectors where growth has visibly decelerated. So far, however, its 7M23 growth appears decent, especially amid more than 5.0% growth last year
It looks as though, in addition to government demand and investment, the third main pillar of domestic demand, namely household consumption, is also doing quite well this year. Rosstat reported that retail sales grew by 2.4% y-o-y in 7M23, and y-o-y growth reached 10.5% in July alone (due to a low 2022 base effect). Rosstat also reported that the country’s cafes and restaurants are doing quite well (they grew by 14.1% and 11.0%), and paid services were up by 4.0% and 4.7% (numbers for both segments are y-o-y in 7M23 and July alone).
As it follows from the CBR statistics, consumer demand in 2023 was strongly fueled by a rapid expansion of consumer credit. Amid such an overheating the regulator hiked the key rate and hinted it could do more. Going forward one can expect consumer lending growth to cool down and private consumption growth to decelerate, with obvious implications for GDP growth.
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