Russian macro: The show must go on—growth above expectation amid decoupling from the West
The country's economic situation looks decent as some key macroeconomic data exceeded most optimistic expectations. It turned out that GDP grew slightly above 2.9% y-o-y in 9M23 as Rosstat reported that it increased by 5.5% y-o-y in 3Q23. Such quarterly growth was well above expectations. Even though it was a flash estimate with no other details provided, this figure indicates that economic growth accelerated in 3Q23. In 2Q23, GDP was up by 4.9% y-o-y. Note that the deepest contraction in 2022 was in 2Q22 (GDP was down by 4.5% y-o-y). In 3Q22, GDP fell by only 3.5%. Since then and until recently, GDP has grown by nearly 0.9-1.0% q-o-q in seasonally adjusted terms—except for 1Q23 (0.7%). It looks as though seasonally adjusted GDP grew well above 1.0% q-o-q in 3Q23. GDP growth in 2023 as a whole will likely visibly exceed 3.0%—even though the recently appreciated ruble (below USD/RUB 90) will drag on GDP growth in 4Q23.
In 2024, GDP will likely continue to grow, and this growth will structurally be almost the same as in 2023 (assuming other factors being equal). Moreover, 2024 growth may be even faster as the economy will be influenced by the recently amended 2023 budgetary expenditures (to be financed in December) and the planned increase in 2024 expenditures.
Despite regular budgetary amendments and growing spending, Russia’s macroeconomic policy remains quite conservative, as amid accelerating inflation and soaring budgetary expenditures the CBR tightened its policy and raised the key rate to 15%, and another rate hike is likely in December. Still, government policy is not immune from occasional shortcomings, such as the recent decision on obligatory FX sales by exporters. The ruble strengthened after that and may negatively affect economic growth and budgetary revenues, as well. Nonetheless, the federal budget deficit in 2023 and 2024 will be slightly above 2% of GDP, and government borrowing will be limited. However, in order to be closer to the 2024 revenue target, the ruble needs to be weaker to inflate oil-and-gas revenue flow next year. Hence one should expect that the government will cancel obligatory FX sales (or soften the requirements) at some point.
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