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of the year.
The threat of a recession in Russia is growing. The economic statistic that Putin loves to cite is GDP growth. The economy last year contracted 2.1%, but it grew 4.6% in the second quarter of this year. “Sure, for a few months in the middle of last year, things were very difficult. But ever since the third quarter [of 2022] Russia has seen economic growth,” Putin boasted earlier this week.
But this rapid growth is down to two things — public spending (mostly on the military) and a dovish monetary policy. However, as the Russian currency tumbles, the Central Bank has turned more hawkish and is again raising interest rates. Following a dramatic slump in the ruble last week, it hiked the rate by 350 basis points, taking it to 12%. That helped Russia’s currency, but it has significantly increased the danger of Russia entering a recession in the coming months — from 6 to 21%, according to calculations by Bloomberg.
Bloomberg assessed the likelihood of a recession on the basis of the difference between the yields of five-year and three-month government bonds. The sudden rate hike flattened the yield curve but also reduced the spread between these securities’ yields. And this indicates a greater risk of recession, according to Bloomberg.
Interest rates on short-term borrowing remain lower than 12%, which suggests that the market expects a rate cut in the next three months, Bloomberg reported. However, if expectations start to turn toward the 12% rate remaining in place for longer, the likelihood of recession in the next six months could double to around 40%.
Experts at the centre for Macroeconomic Analysis and Short-term Forecasting have also written about the threat of recession. “The weakening ruble (and rising prices for imports) plus the hike in the Central Bank’s base rate could reverse the emerging upward trend,” they warned in a report published last month.
Analysts worry that a bubble is forming in the real estate market. The strong growth is helped by the government’s policy to subsidise mortgages as a way to stimulate the economy, but tehre are signs this policy has been taken too far.
The potential challenges lurking within the mortgage market continue to be a topic of fervent discussion. Over the past years, the government's discounted mortgage initiative, in direct opposition to the Central Bank's stance, has contributed to inflaming the real estate sector. The allure of securing a mortgage at a reduced rate, occasionally even below the base rate, spurs individuals towards property acquisition. Consequently, this robust demand outpaces supply, leading to an upsurge in real estate prices, which saw an average increase of 21% across Russia last year. In a move to sustain this
RUSSIA Country Report September 2023 www.intellinews.com