Page 63 - RusRPTApr23

and gas (-3.2%) and metal ores (-3.1%) all fell. However, there was growth (+14.2%) in the production of other raw materials, including stone, gravel and sand (this suggests growth in the construction industry likely fueled by the advance payments mentioned by the Finance Ministry).
In early March, the government allowed companies working in public procurement to receive up to 50% of the value of their contracts in advance. Companies engaged in capital expenditures (for example, road building) in annexed Ukrainian territory can receive up to 90% in advance. Construction contracts in these areas go to firms linked with the Russian military, security forces and officials.
Increased budget expenditure at the start of 2023 can offset the generally unfavourable economic background, according to Central Bank analysts. High spending has contributed to increased production in the manufacturing sector, particularly in sectors related to the military-industrial complex. However, production in the raw materials sector has declined, although there has been growth in the production of other raw materials.
The second important factor in economic stabilisation is growing consumer optimism and related consumer spending. Studies commissioned by the Central Bank indicate that consumer confidence has almost entirely rebounded after collapsing following Russia's mobilisation in the autumn. Economic indicators also point to improving consumer sentiment, with spending stabilising, helped by a labour shortage driving up incomes.
Business sentiment is also improving: in February the PMI index reached a record 53.6 points, its highest level since 2017. Business confidence is growing on the back of an increase in new orders, according to analysts from credit rating agency S&P. Although most of this comes from domestic clients — exports “are falling even further.” At the same time, the real situation in the manufacturing sector is close to stagnation, according to Vladimir Salnikov of economic think tank CMASF.
The two significant challenges facing Russia in 2023 are revenue shortfalls and inflation. Changing oil taxation and a one-off payment from businesses can provide the state's finances with a temporary boost, but they cannot fundamentally change the situation. The Finance Ministry is unlikely to remain within its declared budget deficit target of 2.9 trillion rubles or 2% of GDP, and the government may have to use the National Welfare Fund and take on debt to plug the deficit. This, in turn, will force the Central Bank to maintain a tight monetary policy for longer.
63 RUSSIA Country Report Russia April 2023 www.intellinews.com