government investment compensated for the decline in net exports

Rosstat confirmed the estimate of GDP growth in the second quarter of 2023 at 4.9% in annual terms (after a decline of 1.8% in the first) and published the first estimate of the elements of its use. Final consumption expenditures in the structure of GDP in the second quarter increased to 72.6% from 66.1% a year earlier. Households – up to 52.1% from 47.4%, government – up to 19.9% ​​from 18.2%. The share of gross accumulation increased over the year to 23.4% from 18.7%, including fixed capital formation – to 21.4% from 18.3%. The contribution of changes in inventories increased to 2% from 0.4%. The share of net exports (exports minus imports) fell sharply – to 4% from 15.2% a year ago.

According to calculations by Alexander Isakov from Bloomberg Economics, 4.9% of GDP growth in the second quarter is made up of 4.2 percentage points (pp) in household consumption growth, 4.1 pp in tax accumulation of capital and inventories, 0.4 pp. p.—government consumption (at the same time, GDP growth decreased by 3.8 percentage points; net exports and other factors, see chart). “The contribution of government consumption looks small, but in this category only “consumer” government spending is taken into account, and government spending of an investment nature – on roads or military equipment – goes into the category of fixed capital accumulation,” the expert explains, including the rapid growth of gross fixed capital formation capital in the second quarter. At the same time, the growth of government final consumption expenditures in the second quarter was only 3%, and gross fixed capital formation was 16% higher than the trend that existed before the beginning of 2022. “The history of GDP by consumption over the past 10 years shows that the proportions of consumption are stable. This is a push and pull between net exports and the share of the public sector,” adds Alexander Isakov.

Let us recall that against the backdrop of fading intra-annual economic growth dynamics (see “Kommersant” on September 19), the Ministry of Economy in September raised the forecast for GDP growth in 2023 to 2.8% from 1.2%, and the Central Bank on September 15 kept the growth forecast at 1.5–2.5%. At the same time, the Central Bank lowered the upper limit of the interval forecast for GDP growth in 2024, now the regulator’s forecast is 0.5–1.5% versus 0.5–2.5% in the July version. FocusEconomics’ October consensus forecast for Russia, published yesterday, suggests GDP growth of only 1.3% this year (1% a month ago) and 1.1% in 2024 (1.2%).

Artem Chugunov