Russian macro: The Russian economy in 2023—Transition 2.0 in progress
Recent statistics published by Rosstat suggest that the Russian economy continues to recover from the epic 2022 shock and multiple aftershocks that keep coming in the form of regular sanctions. Businesses and the economy in general had to react to these changes as it became clear to almost everyone that things wouldn't return to where they had been as neither side (Russia or the West) needs it—irrespective of the outcome of the conflict in Ukraine. Amid this tectonic shift, the Russian economy is now back in transition mode, i.e., where it already suddenly found itself in the 1990s.
Recent statistical data suggest that the economy appears more adaptable than thirty years ago, as the GDP contraction was not deep in 2022 and the economy is set to grow in 2023. What has already radically changed is the external balance, foreign trade flows, as well as capital flows and related regulations. In the past thirty years, Russia’s balance of payments usually had a significant surplus. It meant steady capital outflow, including the savings of the Russian government in the National Wealth Fund. Generally, this means that the Russian economy was unable to use this money and its growth potential remained underutilized. In 2023, the current account will shrink but will still be sufficient to secure foreign debt repayments (albeit with some additional regulations for creditors from the “unfriendly” jurisdictions). The ruble has to be weaker in the current environment, and the ongoing weakening is healthy.
A few factors could be in favor of somewhat higher efficiency and a thriftier utilization of available resources. Some lessons recently learned by the government and big businesses are among them. Running the budget with a surplus and accumulating reserves in “unfriendly” currencies eventually turned into unrecoverable losses. Even if a recovery miraculously occurs at some point, the economy won’t need this money in the coming decades as new money will have been earned by then and the agenda will be completely new. Going forward, Russian businesses also won’t be looking to keep money offshore as much as they did in the past decades. What is already lost/frozen/confiscated by sanctions won’t be that important decades or even years from now. Capital outflow will diminish in line with the shrinking current account, which will mean better utilization of available financial resources. In 2023 GDP may grow by 2.5%, and there is a potential for an upside to this forecast. However, amid the ongoing depreciation of the ruble, the country’s dollar-denominated GDP will likely move well below $2.0 trln from an abnormal, over $2.2 trln in 2022.
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