Page 33 - RusRPTApr23

Annual change in Russian GDP,%
2019 2020 2021 2022 2023
GDP 2.2 −2.7 5.6 −2.1 −2
Domestic 3 4 8 −1 −1 consumption
Siberian Federal Districts, as well as Buryatia in the Far East Federal District. In contrast, average wages in rich regions of the Central Federal District such as Moscow and Kaluga failed to keep pace with inflation.
We expect public consumption to increase this year, especially in internal security and defence. At the same time, declining oil prices and economic recession should significantly reduce public sector revenues. We therefore expect this year’s budget deficit to well exceed the budgeted deficit of 2% of GDP. The public sector deficits this year and next can be financed with assets from the National Wealth Fund,[2] issuance of domestic debt securities, increased taxation of private firms and central bank funding as a last resort, but even domestic funding has its limits. Over the medium term, Russia needs to cut public-sector spending or find new revenue streams.
As projects begun before the war reach completion this year, we expect fixed investment growth to slow. Western sanctions on Russian oil exports and a general drop in global oil prices will also thin the revenue streams of Russia’s largest energy producers. The government’s import substitution plans, however, call for new investment in domestic production facilities. The foreign trade shift to the east and south will also require vast infrastructure investment that depends on ongoing public support. Moreover, continuation of the war necessitates greater defence spending and investment in military industries. The country seems bent on directing increasingly scarce labour and capital to branches where productivity is questionable at best.
Russian imports should be slightly higher this year compared to the realised level of 2022, but given that sanctions continue to restrict import possibilities, a strong recovery in imports is very unlikely. Further, as oil & gas revenues decline, imports will not be supported by a strengthening ruble exchange rate. The volume of exports is forecast to contract, largely on declining oil & gas exports. This is due not only to the EU’s import restrictions on crude oil and petroleum products, but also Russia’s decision to restrict pipeline natural gas exports. As a result, net exports will have a negative impact on GDP development this year.
The contraction in the volume of exports may be smaller than we previously predicted. Some of this reflects the G7’s price-cap mechanism imposed in December 2022 (crude oil) and February 2023 (petroleum products). To prevent upsetting global energy markets, the mechanism was designed to reduce export prices for Russian crude oil and petroleum products, not to reduce export volumes.
We expect Russian GDP to contract a further 2% this year. Without significant changes in the war situation or sanctions regime, we see Russia experiencing close-to-zero economic growth in 2024. The medium-term growth outlook depends above all on how the war eventually ends.
33 RUSSIA Country Report Russia April 2023 www.intellinews.com