Page 33 - bneMag Oct23

bne October 2023 Cover Story I 33
After a horrendous start to the
year with excruciating new oil sanctions that led to the largest January deficit on record, the Kremlin is starting to sound increasingly optimistic about the health of the Russian economy by the end of the year.
Russia is going through a “large-scale macro transformation,” but the “worst is over,” Prime Minister Mikhail Mishustin said on September 28 during the Moscow Financial Forum.
“The Russian economy is undergoing
a large-scale transformation. The unilateral disruption of the previous economic ties by the Western partners exacerbated many problems, but the most difficult period has passed,” he told Russia’s collected liberal macroeconomic team at this annual event.
The growth forecast has been upgraded several times this year and is currently 2.8%. However, the collapse of oil and gas revenues following the imposition of the twin crude and oil products sanctions on December 5 and February 5 saw the budget deficit hit its full year target by the second week of March. Independent analysts were certain that the Ministry of Finance (MinFin) would miss its 2% of GDP taregt by a wide margin with many predicting a deficit of 3-4% and some as much as 12% of GDP.
Russian Finance Minister Anton Siluanov stuck to his guns and predicted that oil revenues would recover in the second half of the year and the 2% target was still obtainable, although over the summer he wobbled a bit and briefly began to talk about
a range of 2% to 2.5%.
However, speaking at the forum, Siluanov sounded a lot more confident as his prediction of rising oil revenues has come to pass. Russia’s budget
went back into profit in August with
a whopping RUB800 trillion surplus, about three times higher than an average month, as oil export revenue to Asia –
a four month round trip – began to arrive in the state’s coffers and Siluanov is now predicting the state will end the year with a deficit of “2% or less”.
Russian budget y/y RUB bn (monthly)
Source: Russian MinFin
"Revenues – both oil and gas and non-oil and gas – exceed our planned targets, parameters and expenses. Therefore, the federal budget deficit will definitely not be higher than 2%, and possibly lower. Everything will depend on the volume of expenses that will be made for the period remaining until the end of the year.
The deficit will not exceed our planned figures," he firmly said.
Russia PMI
picked up from 4.9% y/y in July to 5.4% y/y in August (chart) and that retail sales growth edged up from 10.8% y/y to 11.0% y/y as the economy continues to adjust to the new realities and benefits from a “military Keynesian boost” that is the result of massive state spending.
"The estimate [for GDP growth of] 2.8% looks rather realistic," Minister of Economic
Source: S&P Global
The fresh flow of money streaming into the treasury has boosted economic activity with indicators like the manufacturing PMI index staying well above the no-change 50 mark for most of this year.
Russia’s industrial production and
retail sales data for August suggest that activity remained fairly solid, and Capital Economics thinks the economy is on track for GDP growth of 2.5% this year, slightly ahead of the official 2% forecast, the analysts said in a note.
Data released on September 27 showed that industrial production growth
Development Maxim Reshetnikov told the forum, adding that growth will slow slightlyin 2024-2025 to 2.3% and to 2.2% by 2026. But the forecasts that Russia would fall into a deep recession have already proven to be false, and “none of the Western experts expected that.”
Investment activity and the recovery of consumer spending have become the key growth drivers for the economy, he said. Nevertheless, the Russian government plans to continue improving the country’s financial sovereignty, and it wants to speed up the switch to a wider utilization of the ruble in its international trade.
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