At the end of 2023, GDP growth is currently estimated at a record 3.5%, but after clarification it could reach 4%
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Based on the results of 2023, GDP growth is so far estimated at a record 3.5% – as the head of the Ministry of Economy, Maxim Reshetnikov, said on Wednesday, January 17, at a meeting with the president, this dynamics is based on domestic demand, both consumer and investment. Taking into account the clarifications, the Ministry of Economy believes, the figure could reach 4%, and in the coming years exceed 2%, although the likelihood of such a scenario still raises doubts among experts against the backdrop of historical dynamics and ongoing problems in the economy. Thus, inflation at the level of 7.4% was named as a challenge for it yesterday; also among the growth limiters are the shortage of personnel, the high cost of loans and investment prospects. Industry results will be summarized later – of the large “blocks”, only the results of housing construction were announced yesterday: housing commissioning for the year amounted to 110.1 million square meters. m, which became a new record – it, however, is unlikely to increase noticeably with refinement.
Yesterday, at a meeting between Vladimir Putin and the government, the authorities summed up the results of 2023 for the economy as a whole. Referring to the opinion of Prime Minister Mikhail Mishustin, Vladimir Putin said that the GDP growth rate, which is currently estimated at 3.5% at the end of the year, with “more careful calculations may turn out to be a little higher.”
We are talking about a final GDP growth rate of approximately 4%, added the head of the Ministry of Economy, Maxim Reshetnikov, stipulating that this will be provided “if the scale of the clarifications is comparable to previous years.”
“Our experts confirm that such a result will most likely be achieved, but Rosstat will announce the final figure at the end of this year,” the minister assured. He explained that there are a total of five estimates for each year of economic growth, which are updated over two years—in particular, before the New Year, Rosstat presented a new estimate of GDP in 2022, lowering the estimate of the decline from 2.1% to 1.2%. (see “Kommersant” dated January 9).
In 2023, GDP growth of 3.5% was also largely possible thanks to positive recalculations of Rosstat data for the second and third quarters of last year (see “Kommersant” dated November 30, 2023). According to Alexander Isakov from Bloomberg Economics, however, growth of 4% by the end of 2023 is unlikely. He notes that revisions to GDP growth over the past 20 years have been asymmetrical in the sign of the first estimate. Thus, the average revision for quarterly growth year-on-year was indeed plus 0.46 percentage points (pp), but Rosstat on average overestimated quarters with a decline in activity upward by as much as 0.95 pp, and quarters of growth – by 0.3 p.p. up. “Thus, the basic growth estimate by the Ministry of Economy of 3.5% is already at the upper limit of what is consistent with the available data, and the history of updating Rosstat estimates suggests that the results of periods of growth are more modestly adjusted upward.” Consequently, growth in 2023 most likely turned out to be above 3%, but below 4% even taking into account additional estimates,” the economist concludes.
In general, the current GDP growth, noted Maxim Reshetnikov, is ensured by high domestic demand – both consumer and investment.
Thus, the total turnover of retail trade, catering and paid services for January-November 2023 in real terms increased by 5.7%. This, he said, is based on the growth of real incomes of the population due to both government support measures (over three quarters they grew by 4.4%) and real wages (net of inflation) – by 7.7% (nominal growth amounted to 13 %). First of all, income growth was ensured by the first half of the year. According to estimates by the Center for Macroeconomic Analysis and Short-Term Forecasting, taking into account seasonality, month-on-month salaries grew by 0.3% in June, decreased by 0.6% in July, increased by 0.6% in August, and decreased by 0.4 in September. %. “Inflation is too high, and the financial position of companies is no longer reliable enough to quickly increase wages even in conditions of a pronounced labor shortage,” analysts explained. In October 2023, there was indeed a jump in the growth of the indicator, but, as the center’s analysts noted, it was unusual (outlier) and was due to the postponement of the traditional January indexation to October due to rising inflation and the expected increase in the minimum wage (see “Kommersant” dated December 27, 2023).
In terms of investments, Maxim Reshetnikov recalled, growth for the three quarters of 2023 is estimated at 10%, and “in the structure of investments, investments in the modernization and expansion of production and the purchase of new equipment have increased.” However, earlier Central Bank analysts have already noted that the increase in investment expenses is largely due to the rise in price of equipment against the backdrop of sanctions and exchange rate changes, and investment activity itself is of an inertial nature, that is, the growth is ensured mainly by the completion of old projects (see Kommersant on January 11 ). Domestic demand, according to the minister, is “satisfied by growing domestic production” – in January-November, industrial production grew by 3.6%, and “processing” by 7.5%.
In the coming years, according to Maxim Reshetnikov, GDP growth rates are expected to be more than 2% per year. Such a pace, he added, could allow Japan to overtake Japan in terms of GDP in purchasing power parity terms in the next three to four years, since the gap is “not that big” and Japan is growing at a rate of less than 1%. However, we add that such a comparison of the “size” of the economy is rather arbitrary, since it does not reflect its structure and quality.
A challenge for the economy, Vladimir Putin noted, remains inflation, which at the end of the year amounted to 7.4%; in the future, the authorities expect it to decrease.
Thus, Maxim Reshetnikov assured, the accelerated rise in prices for certain goods will be contained due to increased supply and “maximum support for the supply economy.” In the meantime, as follows from Rosstat data published on Wednesday, as of January 15, annual inflation remained at 7.44% (the same as a week earlier; at the end of December – 7.42%).
In general, the president said, agriculture, tourism and cargo turnover also showed good results – the results of last year will be considered in more detail at separate industry meetings. The only “industry” results released as of January 17 were estimates of the construction sector, which in total provides 13% of GDP—according to Vladimir Putin, the housing commissioning rate in 2023 amounted to 110.1 million square meters. m, which became a new record. Note that this exceeded the preliminary estimates that were given in December – 105–108 million sq. m. m, and is 7.2% higher than in 2022 (then 102.7 million sq. m).
As Deputy Prime Minister Marat Khusnullin said after the meeting, of this volume, 51 million sq. m accounts for apartment buildings (plus 13% by 2022, when developers introduced 45.5 million sq. m), and individual housing construction – about 59 million sq. m. m (growth by 3.5% – against 57.2 million sq. m). Thus, about 10 million sq. m. were commissioned in December. m of apartment buildings (versus 8.2 million sq. m a year earlier), and individual housing construction – about 7 million sq. m. m, which became a de facto turning point for this segment (the volume of private house commissioning over 11 months was still lagging behind last year), including against the backdrop of an extremely low base in December 2022 (1.2 million sq. m). However, we would like to add that such an increase in housing volumes has so far had little impact on the population’s housing supply, which is associated with a decrease in the availability of housing in recent years due to its rise in price – now the figure is about 27 square meters. m of total area per person.
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