Page 4 - Russia OUTLOOK 2023

calls these loans “Russian QE”: the Central Bank creates liquidity in the form of
federal loan bonds, simultaneously improving standards in assets and
enhancing money supplies to the banks’ liability without involving capital.

Unemployment levels in Russia remain close to historic lows even as
foreign companies have left the market and factories have closed. The latest
official figures show that 3.9% of the workforce was unemployed in October
(the all-time low of 3.8% unemployment was set in August).

There are several possible explanations for this paradox. First, Russia’s labour
market always responds to a crisis by cutting salaries first, not jobs. Second,
the low level of benefit payments in Russia means that people who do lose
their jobs are likely to grab any job they can as soon as possible.

On top of this, Russia launched its military mobilisation amid this “compressed”
labour market, said Rostislav Kapelyushnikov, deputy director of the Center for
Labor Market Studies at Moscow’s Higher School of Economics. The loss of
approximately 1-1.5 million people from the labour market due to war-related
mobilisation and emigration will exacerbate the situation with a growing pool of
unfilled vacancies.

This serves as a wake-up call that Russia’s labour resources are limited, says
Alexander Isakov, an economist specialising in Russia and Central & Eastern
Europe at Bloomberg Economics. Because there are no spare resources in the
economy, mobilisation requires those working in “productive” industries (such
as processing, construction and transport) to be diverted into the state sector.
All of this impedes potential economic growth: increased defence and public
sector spending have structural side-effects that will limit potential annual
growth to about 0.5% over the coming five years, Isakov says.

Russia’s real estate market is currently experiencing a bubble due to
cheap mortgages. The current programme of discounted mortgages at a rate
of 7% was due to end in Russia at the end of this year. Both the Central Bank
and the Accounts Chamber have repeatedly called for the scheme to be
cancelled. However, President Vladimir Putin recently announced that the
programme would continue, albeit at a slightly higher rate of 8%. These
discounted mortgages are causing Russia’s real estate market to overheat.
The primary and secondary housing markets are unbalanced (the price
difference between a new apartment and a “maintained” apartment is now
40%).

Subsidies have made housing more affordable for more citizens, who have
decided to take out mortgages now rather than wait. Demand has risen sharply
– faster than supply can adapt – and prices are soaring. In Moscow, it is now
impossible to buy a comfort-class apartment in a new building without taking
out a mortgage. However, this bubble is unlikely to burst, according to

4 Russia OUTLOOK 2022 www.intellinews.com