A barrel of tar on a barrel of honey: how the Russian economy completed the first half of 2023

Prime Minister Mikhail Mishustin hastened to report on the emerging progress to President Vladimir Putin on the night of July 4-5. The head of the Cabinet repeated the encouraging figures on July 11 at a government meeting dedicated to the results of the first five months of this year. The prime minister is sure: “Despite the strongest pressure from the West, the Russian economy is coping.” Therefore, he shares the president’s opinion that “the results to date are higher than predicted,” and “the assumptions of ill-wishers have not materialized.”

In a positive clip, Mishustin first of all loaded data on an increase in GDP by 0.6% over the first five months. Of course, the figure is not impressive when compared with previous “peaceful” years. But domestic GDP fell by 2.1% last year (the IMF predicted a decline of more than 8%) and continued to decline last winter. At the same time, in May, the Russian economy grew immediately by 5.5% year on year. True, in the latter case, it is necessary to take into account the extremely low base of last year’s spring.

But the fact remains that Russia has begun, albeit very cautiously, recovery growth. The figure, of course, is close to the border of statistical error. But still, the decline has taken a break for now.

Other macroeconomic parameters also speak of economic recovery. According to government data, in January-May, industrial production as a whole added 1.8%. At the same time, as Mishustin emphasized, growth has been spinning up for three months in a row – from 1% in March to 7% in May. It is gratifying that we are talking about non-primary industries. The manufacturing sector grew by as much as 13% in May (however, one should not disregard last year’s low base here, too). Metallurgy and mechanical engineering were especially distinguished.

HSE analysts note an increase in the index of entrepreneurial confidence. It has already gone a little beyond the limits of negative values. Which is no coincidence. For example, FinExpertiza, an auditing company, noticed an increase in the revenue of non-primary companies back in April. Their turnover increased by 7.4% compared to 2022. The largest growth was shown by the electric power industry, construction, scientific activity, transportation and storage, as well as the hotel and restaurant business. The positive dynamics is explained by the expansion of domestic investment and import substitution.

However, in the first six months, imports themselves have practically regained the positions they lost last year, both in terms of value and physical volumes. Ruslan Davydov, acting head of the FCS of Russia, is sure of this. And it’s not just about parallel imports. The completely legal import of machinery and equipment, primarily from China, is growing at a faster pace. Trade turnover between the two countries grew by more than 40% over six months, to a record $114.5 billion.

There are other macroeconomic achievements as well. In the second quarter, inflation decreased in annual terms to 3.5%. In June – 3.25%. From January to June, price growth was limited to 2.9%. In May-June, the cost of the food basket even decreased, although food deflation is mainly characteristic of August-September. Russian inflation rates are among the lowest in the world. Stable situation in the labor market. Unemployment has been at 3.2% since February.

All of the above allows the state to implement social obligations and maintain a small but growing real disposable income of the population. True, the latter still look more than modest. In the first quarter, they grew by only 0.1%. But then inflation was higher than today’s figures. The Ministry of Economic Development believes that real incomes will grow by 3.4% this year. Apparently, hoping for low inflation.

The basis of real incomes of the population in Russia is wages. The same economic department is counting on the growth of real wages (nominal minus inflation) by the end of December by 5.4%. However, so far there has been little progress in this area. In the first quarter, real wages rose by a modest 0.6%. But, on the other hand, this year nominal average monthly wages are increasing at a particularly high rate. In the first quarter they exceeded 12%.

The median salary is also growing (half of workers receive less than the published amount, the same number more). In April, across the country, it exceeded 47 thousand rubles. In Moscow – 81 thousand, in Chukotka – 97 thousand. As a percentage – plus 14.13.

The overall growth of wages is also ensured by the outstripping rates of increase in the minimum wage. This year this indicator exceeded 16 thousand rubles. per month, in 2024 more than 19 thousand were promised, in 2030 – 32 thousand. But the main thing is the shortage of personnel. There is a shortage of highly qualified workers in almost all industrial specializations. Therefore, vacancies often appear on the market worth more than 200 thousand rubles. per month.

But on this barrel of honey, perhaps, and overflows. It’s time to focus on another barrel – tar.

According to the Central Bank, in the first half of the year, merchandise exports fell sharply, as well as the provision of export services. For example, in June merchandise exports stopped at $32.5 billion (down 12% against May). But at the same time, imports quickly restored the volumes of 2021. In June – $ 26.1 billion (slightly below the May level). As a result, the trade balance for goods amounted to $6.4 billion (against $10.4 billion a month earlier).

According to the results of the entire half-year, the surplus in the balance of trade in goods decreased to $54 billion, which is 3.3 times less than the same indicator in 2022 (almost $180 billion).

The reasons for the drastic reduction in the excess of exports over imports are in the palm of your hand. Since the end of last year, world oil and gas prices have gone down sharply. Brent is now quoted – after all the OPEC+ announcements of production cuts – at around $80 per barrel (and even less). With Urals, the situation is even worse. In January-February, the discount to Brent reached $34-38 per barrel. By July, quotes rose slightly to $62 per barrel of Urals due to a decrease in the discount to $20. The Russian grade ESPO, exported mainly to China, is generally traded with an underpayment to Brent of only $8. And this is almost a quarter of our oil supplies abroad.

Gas on the TTF exchange on July 14 cost less than $300 per 1,000 cubic meters (a year ago – up to $2,000). Physical volumes have also fallen due to various kinds of Western restrictions. Thus, the export of “Gazprom” last year collapsed by almost 46%. In total, the decrease in gas supplies was, according to Rosstat, 30.7%.

As a result, according to the Ministry of Finance, tax revenues from the oil and gas sector decreased by 47% over the first half of the year to 3.33 trillion rubles.

Negative consequences – on a chain. federal budget deficit. In the first five months – 3.5 trillion rubles. By July, it had fallen to 2.6 trillion. But still, Finance Minister Anton Siluanov warns that the budget deficit can change in different directions. And in general, over the past three years, the treasury’s expenses have grown by one and a half times. And this is the limit. Next year, Siluanov is sure, the costs will have to be redistributed. But social and military cannot be touched. Just a dead end.

Due to the poor trade balance, there was a current account deficit (minus $1.4 billion in June). And, as the head of the Central Bank, Elvira Nabiullina, repeatedly explained, the exchange rate of the national currency is falling. Her department, she believes, is not to blame.

As a result, importers warned of an inevitable rise in prices in the near future by at least 10-15%. Inflation at the current level can no longer be kept. The forecast of the Central Bank is 5–6% by the end of the year.

Thus, the challenges to the Russian economy do not go away. And the expectation of a noticeable increase in real incomes of the population is unlikely to be justified. Rather, they are not much, but will be reduced. However, on the other hand, the Russian economy is and will continue to be in a regime controlled by the government. And the barriers to recovery growth will still be destroyed.