Page 7 - RusRPTApr23

1.0 Executive summary
There is little sign of an economic improvement despite the surprisingly robust year Russia put in in 2022 in the face of ten rounds of extreme sanction imposed following Russia’s invasion of Ukraine over a year ago, says the Bank of Finland institute for Emerging Economies (BOFIT) in its weekly update.
Russia’s industrial output contracted by 2% Y/y in January-February. Mining & quarrying production fell by 3.1%, with the most notable drops in output of coal (down by 2.3%) and natural gas (-13.5%). Oil production fell only slightly (-0.6%). The decline in manufacturing output continued with the volume of production in January-February down by 1.7% Y/y, according to the latest Rosstat data releases this week.
But industry showed strong divergent trends. Production in branches dependent on foreign trade continued to shrink, while branches geared to serving the emerging wartime economy experienced strong growth, BOFIT said.
The volume of retail sales shrank by 7.2% Y/y in the January-February period. Food sales were down slightly, but sales of non-food items were off by 11.4% Y/y. The drop in retail sales largely reflected the decline in sales of durable goods. Some of this decline reflects lack of supply as sanctions and logistical challenges limit imports of e.g. household appliances.
The February 2022 invasion sparked fears of higher prices, forced households to accelerate their spending plans and caused consumer spending to spike in March 2022. Although retail sales suffered an approximately 10% drop in April last year, the situation stabilised thereafter. While the 12-month change in March retail sales this year is likely to be similar to the previous two months, the 12-month change is expected be diminish in the months ahead.
The economy continues to be supported by growth in the agricultural and construction sectors. Construction activity increased by 11% Y/y in the first two months of this year, although housing construction experienced no growth whatsoever. Most of the growth in construction likely came from the stepped-up pace of public infrastructure projects.
In January-February, nominal federal budget revenues plunged by nearly 30% Y/y, while expenditures increased by about 50%. The spending burst is due in part to changes in public procurement policies. As much as 90% of the value of projects this year will be paid up front in an effort to stimulate industrial output, particularly the military-industrial complex. Nominal spending on government procurements in January-February 2023 was up by about 350%
7 RUSSIA Country Report Russia April 2023 www.intellinews.com