Page 7 - RusRPTNov23

1.0 Executive summary
Russian President Vladimir Putin says the Russian economy is performing "better than previously expected" but some economists say it is actually overheating.
Despite a tight labour market and persistent inflation, Russia's GDP is set to grow by 2.2% this year, according to the International Monetary Fund (IMF), a rate three times faster than the expected growth in the eurozone, and well ahead of the IMF’s prediction of 0.7% at the start of this year, which was itself considered optimistic at the time.
This unexpected economic boom is primarily due to the massive increase in government spending – a departure from Russia's historical fiscal austerity.
The defence budget has surged to 3.9% of GDP this year, up from 2.7% in 2021, prior to the invasion of Ukraine. It is slated to increase by over 70% in 2024, reaching approximately 6% of GDP. These figures may be conservative as various forms of war spending are concealed within other sections of the budget.
The emphasis on military priorities has strained the labour market by mobilising human resources, contributing to a historically low unemployment rate of 3% in August. Over 300,000 Russian men have been enlisted for the war, causing labour shortages especially in industries unrelated to the conflict.
And Russia has successfully dodged sanctions, providing some economic relief. The oil sanctions in particular are a spent cannon. The rise in oil prices, up nearly 60% since March to around $90 per barrel, has bolstered the economy and government revenue. Putin has revised the budget deficit estimate to just 1% of GDP for this year down from the previous estimates of 2%, thanks to increased oil and gas taxes.
However, the Russian economy faces potential threats in the medium term. The emigration of skilled workers following the Ukraine invasion is causing a talent drain, impacting future growth potential. The weakening ruble, down 30% since January, and high inflation rates, reaching 6% annually, could further destabilise the economy. Russia's growing financial dependence on China, its largest trading partner, poses another risk.
The IMF anticipates a significant slowdown in GDP growth to 1.1% next year, although the CBR is much more optimistic. Putin may face tough spending decisions next year as he seeks re-election in 2024.
7 RUSSIA Country Report November 2023 www.intellinews.com