Experts explained why the Russians will not feel the promised income growth

3% increase forecast seems controversial

Incomes of citizens of Russia this year can grow immediately by 3%. Such an optimistic forecast is given by the Expert RA rating agency. This is almost twice as much as the Ministry of Economic Development promised. At the same time, inflation will fall to 6.5% and unemployment will remain at a low level. Against the background of the Russian budget deficit and the expected fall in GDP this year, such forecasts seem, to put it mildly, controversial.

In October last year, at a meeting of the Duma Committee on Budget and Taxes, the head of the Ministry of Economic Development Maxim Reshetnikov said that in 2023 the income of the population would grow by 1.6%. This forecast then seemed very optimistic to everyone, because it was already obvious that the decline in Russia’s GDP would continue, and the budget deficit would increase. And so it turned out. According to the results of the first quarter of 2023, the deficit of the federal treasury amounted to 2.4 trillion rubles, while for the year, according to the plans of the authorities, it should not exceed 2.9 trillion rubles. The GDP forecast for this year remains disappointing, although it is periodically reviewed by both Russian and international structures. For example, the World Bank changed its forecast for the Russian economy in 2023: now it expects a decline of 0.2% instead of a decline of 3.3%, which it predicted back in January. The Central Bank of the Russian Federation in February, also after the next revision, said that Russia’s GDP this year will be in the range from +1% to -1%.

Against this background, the forecast of “Expert RA” about the growth of incomes of Russians by 3% raises questions. The agency itself indicated that the indicator will be affected, firstly, by the fact that inflation this year may drop to 6.5%, and secondly, by an increase in the minimum wage. Here it is appropriate to recall that the real disposable income of the population is nominal income. Adjusted for inflation.

“Here, the “statistical base effect” of such a comparison is very important,” explains TeleTrade analyst Vladimir Kovalev. – Last year, inflation was high – 11.9%, according to Rosstat. Relative to those high prices, the new increase in 2023 will be much lower. The Bank of Russia expects it at 5-7%, the Ministry of Economic Development – at 5.5%. This is quite realistic, given the savings behavior of Russians this year.” People tend to limit purchases, which also keeps prices down. On the other hand, last year the real incomes of citizens decreased by 1%, according to Rosstat. And if in terms of inflation the effect of the past increased “base” will limit the result of the current year, then in terms of income, on the contrary, it will increase it, the expert explained.

In addition, there are objective reasons for analysts’ optimism. “For example, an increase in the minimum wage this year, which will become the basis for raising salaries for public sector employees,” Natalia Milchakova, a leading analyst at Freedom Finance Global, continues the topic. – Official unemployment in Russia is still very low: according to Rosstat, it is 3.5%. This is a historical record.”

In general, there are reasons for the growth of household incomes in 2023. Another question: how significant will it be in the end? Relative to the unsuccessful 2022, when real incomes fell by 1%, a 3% growth in household incomes will be a very successful indicator. But relative to 2021, when the income growth of the population amounted to 3.2%, this will not be the strongest dynamics, Milchakova emphasized.

“This forecast assumes the absence of strong macroeconomic and geopolitical shocks, which is overly optimistic in the current conditions,” says Maxim Osadchiy, head of the analytical department at BKF-Bank. “For example, if the just-ended local banking crisis escalated into a global financial crisis, then the reduction in real disposable income of Russians would continue in 2023, primarily due to a decrease in exports.” Also, a further increase in sanctions pressure may contribute to a decrease in the income of citizens. The observed surge in the devaluation of the ruble leads to an increase in import prices and contributes to increased inflation, which, in turn, also contributes to a decrease in household incomes, the expert noted.

In general, the dollar value factor can change the picture of real incomes of the population very significantly. “If inflation falls, household incomes can grow, but only if the exchange rate is kept within reason: no more than 70 rubles per dollar,” said Yulia Kuznetsova, investment adviser in the register of the Central Bank of the Russian Federation. If the ruble collapses more, then there is a danger of again reaching a high level of inflation, which will lead to an increase in the price of the consumer basket and the Russians will not feel a 3% increase in income, the analyst explained.