experts measure the temperature of economic overheating

The dynamics of the components of GDP use in the second quarter, published the day before by Rosstat (see Kommersant, October 5), sparked an expert discussion about the scale of overheating of the Russian economy against the backdrop of structural changes occurring in it. In particular, it is noted that GDP growth rates remain above long-term potential (see chart).

As Kommersant has already noted, in the second quarter, a strong drop in net exports in the structure of GDP was offset by a rapid increase in government injections into gross fixed capital formation (according to Bloomberg Economics, 16% above the trend that existed before the beginning of 2022).

In general, among the components of GDP use, according to analysts of the Telegram channel “Hard Figures”, household consumption remains above trend (slowed down to 1% from an average of 2.5% in the third quarter of 2022 – the first quarter of 2023, adjusted for seasonal and calendar factors). Also above the trend is the accumulation of fixed capital (plus 8.2% versus plus 2.7%). Government consumption is at trend level (minus 9.6% versus plus 9.1%), and net exports, noticeably lagging behind their long-term dynamics, demonstrate a recovery growth of 21.7% in the second quarter (seasonally and calendar adjusted) after failure by 41% in the first quarter.

The authors of the calculations note that the budget impulse affects household consumption through rising wages, but its effect on the dynamics of GDP from consumption as a whole will be smaller due to the growth of imports. “The fiscal impulse will continue to push the economy towards overheating, and the final “temperature” will be determined by the degree of monetary policy tightening,” the channel’s authors conclude.

On the production side, the main contribution to above-trend economic growth was made by industry and retail, and to a lesser extent by construction and transport. In the latter case, this is largely due to the lengthening of the transportation route, explain TsMAKP analysts. They note that in the first quarter, “profound changes occurred” in the composition of income components (in current prices and in annual terms): the effect of the jump in world prices was exhausted and the gross profit of the economy became negative. At the same time, the shortage in the labor market led to an increase in wages, which almost compensated for the fall in profits.

Artem Chugunov