Page 5 - Russia OUTLOOK 2024

“Production increases will be limited by sanctions, even if Russia and Ukraine confound expectations and enter peace talks. It’s unlikely there will be any major fiscal problems before the end of next year, but the risks of such a scenario will increase over time,” says Prokopenko.
The rapid economic growth in 2023 was fuelled by a record RUB32 trillion ($346bn) of state spending, much of which went on defence. Industrial output grew 3.6%; manufacturing expanded at 7.5%, and military-linked production expanded at double-digit rates. And in 2024, spending will only rise again, superheating an already hot economy: spending is planned to be RUB36.5 trillion ($395bn), more than a third of which will go on the defence sector and various wartime payments.
It’s not the first time in recent Russian history that the government has resorted to large-scale economic stimulus. For example, during the Covid pandemic, anti-crisis aid was worth 2.7% of GDP; but in 2022-23 it was significantly larger – according to official Finance Ministry figures, it was equivalent to some 10% of GDP.
The military Keynesianism boost from putting Russia on a war footing paid dividends that saw industrial production and the PMIs soar. The manufacturing sector, marked by a robust 9.5% growth in October, continues to be driven by the "special military operation," which has contributed to the expansion of industries such as engineering, chemistry and metallurgy.
Investment activity during the third quarter exceeded expectations, also driven by the war, recording an impressive 13.3% growth rate (compared with 10% from January to October).
The labour shortage caused by the draft led to all-time low unemployment that pushed up both nominal and real wages and that in turn fuelled consumption and more growth. At street level Russia appeared to be booming to most Russians.
A surge in consumer and investment demand has been instrumental in boosting wholesale trade. In October, the total consumer spending of citizens exhibited a remarkable y/y increase of 10.7% (and a 3.3% rise compared to October 2021).
In addition, the external situation rapidly improved as the Kremlin quickly found ways to almost entirely dodge sanctions. Both the oil and technology sanctions have almost completely failed. The oil price cap sanctions that were imposed around the start of 2023 have also failed, with the Financial Times reporting that not a single barrel of Russian oil was sold at below the $60 cap.
The two main unknowns in 2024 are how the military situation in Ukraine will unfold, and possible political changes after the re-election of Putin in March.
5 Russia OUTLOOK 2024 www.intellinews.com