Page 7 - RusRPTFeb23

1.0 Executive summary
The Russian economy went into a tailspin in the weeks immediately following Russia’s invasion of Ukraine and further escalation of Western sanctions caused by the invasion.
Last spring, the Moscow Exchange experienced its largest drop ever, the ruble’s exchange rate crashed to all-time lows and panic overtook the banking sector. The Central Bank of Russia (CBR) quickly responded with severe restrictions on capital and foreign currency markets to prevent a full-blown financial crisis and gradually managed to stabilize the markets. At year’s end, the MICEX index was down by 43% for the year, while the ruble’s official exchange rate to the $had appreciated 6%.
Russian GDP began to contract last spring. In recent months, it has shrunk at a rate of 4–5% y/y according to preliminary estimates from the economic development ministry. The December composite forecast of Consensus Economics, which averages the forecasts of major institutional forecasters, shows 2022 GDP dropping by 3.5%. Growth trends varied considerably, however, depending on the branch.
The largest contractions were seen in the output of industrial branches that rely on imports and foreign companies (e.g. production of passenger cars was down by 79% y/y in November, excavators down by 80% and washing machines down by 60%).
Lack of export possibilities also hit certain other industrial branches in November. For example, wood processing was down by 21% y/y and production of natural gas (excluding LNG) by 16% y/y.
Retail sales, a good proxy for consumption trends, has contracted sharply. The volume of November retail sales was down by 8% y/y. High inflation has eroded the purchasing power of Russian consumers, with consumer price inflation running at 12% p.a. in November. Despite recession, the unemployment rate has remained low and continued to hover around 4% in November.
Output has even increased in certain branches. For example, fabrication of metal products grew in November by 16% y/y and production of special-purpose clothing more than doubled. The construction sector, supported by government infrastructure investment, has also experienced brisk growth.
7 RUSSIA Country Report February 2023 www.intellinews.com