Page 5 - Russia OUTLOOK 2023

independent financial analyst Sergei Skatov: developers have already sold
more than 51% of the housing due to come onto the market by the end of
2023. They need to sell a further 10-20%, which is entirely achievable even if
demand falls to summer levels. Defaults on mortgage portfolios could also
burst the bubble, but with a failure rate of just 0.4% (and 0.15% in the primary
market), this is also unlikely, Skatov said.

Economic outlook

The EU saw a €1 trillion bill for gas prices, since the beginning of the
Russian war on Ukraine. The subsidies of EU states accounted for ~ €700bn.
2023 will be as difficult as prices will be above €1,000 per 1,000 cubic metres,
while budget costs in 2022 were 2-7.5% of GDP.

The cost to Russia is probably even higher. According to a bne IntelliNews
back of the envelope calculation, the war has cost Russia around $200 billion,
just counting the military spending plus the value of a 3% contraction, but that
is equivalent to some 7%-8% of GDP. Those costs are bound to rise in 2023 as
the effect of sanctions start to bite.

Russia’s invasion of Ukraine in February has changed everything for
everyone. The tragedy is that in October 2021, just before this crisis started,
Russia’s economy was booming. A dozen companies had done billion-dollar
IPOs. Incomes were rising. The leading companies were expanding abroad.
The budget was healthy and in surplus. It appeared that Russia had finally
emerged as a first world country.

Then Russian President Vladimir Putin wrecked it all by insisting on his
no-Nato for Ukraine deal, a demand he backed with the threat of force and
when no deal was forthcoming he followed through on his threat. The upshot is
we are now living in a fractured world that is fuelling a polycrisis from which it
is unlikely that we will emerge for several years.

Remarkably, Russia’s economy has had a very good year in 2022
considering the “massive package” of the sanctions inflicted on it in March
about a week after it crossed the border into Ukraine.

At the start of the war the consensus was that Russia’s economy would
contract by at least 15% – worse than the 8% contraction Russia suffered in
both the 1998 and 2008 crises. As the year drew to an end the consensus was
the contraction would be a little less than 3%.

Most of the macroeconomic results have done far better than expected.
Inflation is high but as the Central Bank of Russia (CBR) was one of the first to
start hiking well before the war started, it is falling now and is around 12% – far

5 Russia OUTLOOK 2022 www.intellinews.com