Page 7 - RusRPTDec22

shelves. Russian companies have largely found new suppliers or supply routes to get many of the products they imported before the sanctions, but the big exception is with technology and machinery.
But the war is slowly impacting the economy.
September deterioration was led by consumption as the volume of retail sales was down by about 10% y/y. Consumer demand was quelled by reduced purchasing power as real incomes shrunk by more than 3% y/y during July-September. Consumption was further depressed by the partial mobilization that started in late September.
The decline in industrial output deepened in September. Production of mining and quarrying industry contracted by 2% y/y. While crude oil output was up slightly, growth slowed to just 0.5% in September. Production of all other major mining products contracted. The drop was led by lower output of natural gas, which was down by 26% y/y (not including LNG). The drop in manufacturing output accelerated in September to 4%.
Agriculture and construction continued to prop up the economy in September. Agricultural output rose by 7% y/y, while construction, despite some cooling, was still up by 6% y/y in September. Housing construction activity, however, slipped into decline in September, falling by 8% y/y.
The partial mobilisation that started on September 21 has also hit the labour market with Russian company surveys from October revealing that about a third of respondents said that the mobilisation had affected their employees. An even larger share of firms said they expected the mobilisation to affect negatively the labour market and demand in coming months.
Spending on the war has also hit the budget where all the surplus of the first quarter has been used up although the budget remained in a small surplus in the first nine months of the year, but only after Gazprom was hit with a special tax worth over RUB400bn, otherwise it would have reported a small deficit. Oil and gas tax revenues rose significantly, even though the price of Urals oil was lower than a year earlier for the first time this year in September-October. But the increase was due to the tax payment collected from Gazprom, without which the drop in the budget's total revenues compared to the year before would have been down about 20%.
Russia remains on track to end the year with a mild 2% of GDP deficit that will be funded partly from the National Welfare Fund (NWF) and partly with new issues of Russian Finance Ministry’s OFZ treasury bills. The Ministry of Finance (MinFin) plans to issue something on the order of RUB2 trillion a year in OFZ going forward and tap the ample liquidity in the banking sector as a source of funding the budget going forward.
7 RUSSIA Country Report December 2022 www.intellinews.com