Page 34 - RusRPTAug23

3.1 Macroeconomic overview
The Russian economy is set to completely reverse last year’s slump –
something Putin has recently highlighted. Manufacturing and construction lead the way, alongside retail. In a broad sense, all three sectors are beneficiaries of the war. The defence sector, working in three shifts, is boosting production: in June, for example, the biggest increases were in finished metal products (+45.8% y/y); computers, electronics and optics (+71.6% y/y), radar equipment (+75.4% y/y) and electrical equipment (+32.1% y/y). Production capacities are running at their maximum.
Construction is primarily driven by discounted mortgages: currently, 51% of loans come with state support, up two percentage points since April. Overall, the mortgage portfolio of Russia’s top 20 banks was up 3% in May. In addition, construction continues on occupied Ukrainian territory. “In the first half of the year, 20 apartment blocks were built and more than 2,000 were restored. More than 150 public buildings, plus more than 1,000 residential and community objects. Federal contractors restored 260 kilometres of roads,” Deputy Prime Minister Marat Khusnullin said recently. These projects, along with the construction of massive defensive fortifications on the frontline, even led to a shortage of cement.
Retail growth has been driven by increased salaries and social handouts (some of which are connected to the war). Real incomes are up in regions that are home to military factories and where reports suggest there are large numbers of contract soldiers (for example, Buryatia, the Jewish Autonomous Okrug and Chechnya). Double-digit wage growth masks one of the biggest barriers to economic growth — a shortage of labour. A lack of workers and limits on production capacity lead to what economists call an “overheated economy”: supply cannot match rising demand, and prices increase accordingly. To cool down the economy, the Central Bank may be forced to further increase interest rates.
Russia's economic growth accelerated to 5.4% year-on-year in May, according to Federal State Statistics Service from 3.4% Y/y in April.
That was the second consecutive month of expansion following 12 months of continuous Y/y declines in gross economic output. In seasonally-adjusted terms, the Economy Ministry put the growth rate in May at 1.4% Y/y after 0.1% in April.
34 RUSSIA Country Report August 2023 www.intellinews.com