Russian macro: The 2023 economic outlook increasingly uncertain as GDP contraction is moderate in 2022
In mid-summer, it became clear that Russia’s GDP could contract less this year compared to the earlier thinking - accounting for the magnitude of the geopolitical shock the country has faced (or chosen). The effect turned out to be less significant than was considered right after the start of the military operation. However, it is still much more difficult to foresee the 2023 trends and the tipping points – if any. The Russian mantra suggests that all the objectives of the military operation are to be achieved irrespective of costs and the required time frame. The Western mantra proclaims that support to Ukraine will be given for as long as needed (and whatever it requires). Hence, we are just at the beginning of a conflict that could escalate further and last for a long time. It looks as though the Russian economy is not only trying to adjust to new economic realities, such as a broken trade with the West, but it is becoming increasingly military-oriented. Understanding such an economy and forecasting its development is not easy. Hence, the 2023 outlook remains in the dark, and the broad consensus suggests that in 2023, the Russian economy will continue to contract.
Macroeconomic policies have to adjust to new realities. Some sectors, such as state banks, the defense sector, and a few others affiliated, will benefit. The rest may not. Overall, it looks as if there will be more crowding out next year, and the state will play the more dominant role in the economy. Amid continuous uncertainty, consumer and investor confidence (meaning purely private investors, not affiliated with the government) will remain subdued, while the efficiency of government spending has not demonstrated a strong track record. Hence, the chances for a continued recession in 2023 are non-zero.
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