2023-08-11 18:18:21
Russia’s economy ended four quarters of contraction with a stronger-than-expected growth spurt, putting it on course to return to pre-war levels.
The series of annual declines since the invasion of Ukraine was the longest in more than five years. However, with an increasingly liberal fiscal policy in support of the war effort, GDP grew 4.9% in the second quarterthe first increase recorded since the first three months of 2022.
The Federal Statistics Service’s preliminary assessment on Friday was thus higher than all but two forecasts in a Bloomberg survey of analysts, including the median forecast was a rise of 3.9%.
GDP could return to its pre-war level by mid-2023, according to Natalia Lavrova, chief economist at the BCS financial group, which forecasts growth of 2% in 2023.
In the midst of a conflict with Ukraine, Russia had chained four quarters of GDP contraction, notably from January to March 2023 at -1.9%again according to Rosstat.
Quarterly growth
In quarterly terms, the economy is already growing, and the recovery was further accentuated between April and June. “If we talk about the full annual figure, in 2024 Russia will already exceed the level of 2021“, Rosbank economist Evgeny Koshelev said in Moscow.
The turnaround defies predictions of a long period of decline in response to sanctions imposed after the invasion of Ukraine in February 2022. Increased defense spending has boosted industrial production, while consumer demand is gaining momentum thanks Has increased spending on social support and higher salaries.
GDP could return to pre-war level by mid-2023says Natalia Lavrova, chief economist of the BCS financial group, which forecasts growth of 2% in 2023.
Several challenges
But the second quarter of 2023 was above all marked by the return of inflation against the backdrop of a significant drop in revenues from the sale of hydrocarbons.
And the Kremlin’s effort to extend the military recruitment risks hampering this objective, as the labor shortage worsens. Indeed, Russia’s attempts to entice more volunteers to join the invasion of Ukraine risk creating an imbalance in the labor market, which could encourage the adoption of more selective recruitment measures for people whose absence would be less felt. THE unemploymentalthough at a very low level of 3.1% in June, already reflects a contraction of the labor force related to the consequences of the military intervention in Ukraine.
Challenges are also mounting for Russia beyond the labor market. The ruble is close to 100 for a dollar after losing about 25% since the start of the year, a fall that Central Bank Governor Elvira Nabiullina has largely attributed to the deterioration of foreign trade conditions.
Rising growth forecasts
While import flows remain stable, restrictions on energy sales from Russia, including a cap on the price of oil imposed by the Group of Seven, have led to a steady decline in export earningsbringing the balance of payments surplus to its lowest level in two years.
The Bank of Russia also recently raised its annual growth forecast at 1.5-2.5% for 2023, noting that production in most domestic demand-driven sectors had reached or even surpassed pre-war levels. It forecasts growth of 0.5% to 2.5% next year and 1% to 2% in 2025.
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