Page 5 - RusRPTAug23

1.0 Executive summary
Russia's economic growth accelerated to 5.4% year-on-year in May, according to Federal State Statistics Service and has more or less recovered from the shocks following the imposition of sanctions. Growth remains stymied, but Russia is now growing faster than many of the EU countries that have sanctioned it thanks to the Keynesian boost of massive military spending.
Acceleration in wage growth and falling unemployment ... Overall, while the headline data gives a very positive picture of a rapid economic recovery in Russia, it is important not to overestimate the importance of that since to a large extent the good figures are a reflection of big declines in output seen one year ago. However, two macro trends should be viewed as a reason for concern: these are the acceleration in real wage growth and a continued decline in the unemployment rate. These tendencies together show that structural problems in the Russian economy are getting deeper and more acute – such problems as a lack of labour due to falls in migration inflows and poor demographics. That, in turn, puts rising pressure on wages – a factor that potentially could become one of the main drivers for inflation.
... are a matter of concern in the long term. Potentially, these structural problems could be exacerbated by the risk that stems from the attempts by the government to bring its finances back into balance. Such moves would lead to the slashing of non-critical spending items – such as funding various investment and construction projects. Such efforts would inevitably translate into a slowdown in the economy – a scenario that could start to evolve already by the start of 2024.
The Russian economy is set to completely reverse last year’s slump. 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.
Retail growth has been driven by increased salaries and social handouts
5 RUSSIA Country Report August 2023 www.intellinews.com