Over the 11 months of 2023, Russia’s GDP grew by 3.3%

By the end of the year, macroeconomic statistics provide more and more evidence of a noticeable slowdown in the economy – GDP growth slowed to 4.4% in annual terms after 5.1% in October. Some slowdown in rapid growth was ensured by the Central Bank’s measures to cool the economy, a shortage of personnel, as well as rising costs and a reduction in import supplies. There are no prospects for a change in trend and a return to record growth rates in the near future – possible ways to solve structural problems in a number of cases conflict with each other. Industrial sentiment, which showed record optimism throughout 2023, also weakened somewhat.

According to the Ministry of Economy, in November 2023, the Russian Federation’s GDP exceeded the level of last year by 4.4% (in October – by 5.1%, in September – by 5.6%), and the level of two years ago – by 2.1% ( by 1.8% and 1.5% in October and September). Excluding seasonality, economic growth in November amounted to 0.04% (given the conventions of monthly GDP measurement methods, the accuracy of the calculation to the hundredth does not give much – it is a solid zero, no growth or decline) after 0.3% in October and 0.5% in September In general, based on the results of 11 months, GDP grew by 3.3% year-on-year, compared to the level of two years ago – by 1.2%. Thus, economic growth by the end of 2023 will in any case exceed the forecast values, while the combination of the weakening of the ruble, the Central Bank’s measures to cool the economy and labor market restrictions ensured a sharp slowdown in GDP growth by the end of the year.

According to Rosstat, the annual growth rate of industrial production also slowed down in November – to 4.3% from 5.3% in October 2023. In January-November 2023, output increased by 3.6%, with the Ministry of Economy forecasting 3.6% for the year. The intra-annual dynamics of output, excluding seasonality and calendar, do not change – since May they have been on a plateau with dynamics around zero. In November, compared to October, there was an increase in industry by 0.2% after a decrease of 0.4% in October compared to September.

The driver of growth remains the manufacturing industry, which added 8.1% year-on-year in November after 9.5% in October. The growth in November compared to last month remained at the level of October (0.1%), even with the elimination of the seasonal factor. The rapid growth in processing, as in the previous six months, was ensured by 89% of three sectors: mechanical engineering (plus 4.6 percentage points, plus 0.1 percentage points by October), chemistry (plus 1.4 percentage points after plus 1.6 percentage points) and metallurgy (plus 1.2 percentage points after 2 percentage points) – their growth is associated with meeting the needs of the military operation.

In production, the decline accelerated to 0.4% from 0.1% in October: against the backdrop of a reduction in coal and ore production. The energy sector showed a decrease in the index by 0.5% in annual terms due to a decrease in steam and heat production with an increase in electricity generation. Industries related to water supply and sewerage, waste management and pollution control increased activity by 3% in November.

Output growth has so far been supported by enterprise optimism and growing consumer and investment demand. Previously, experts reported a strong reduction in imports of machinery and equipment, which ensured a cooling in the supply of investment goods (see Kommersant on December 25). At the beginning of December, the Central Bank recorded both the long-awaited cooling of lending and a dimly expressed, but reliably recorded transition of households to saving behavior. Although, according to Rosstat, retail turnover in November continued to grow (see page 2).

According to the Gaidar Institute, significant optimism among enterprises in 2023 (the mood was better only in 2007 and 2021) in the context of an “unprecedented increase in government purchases to meet the needs of the Northern Military District and massive import substitution” caused difficulties in adapting industry to new conditions. Thus, if estimates of normal domestic demand (volumes of export demand were recognized as normal by only a third of enterprises), inventories of finished products, capacity provision and the financial and economic situation of enterprises “dipped” slightly in 2022 and were able to recover in 2023, then in terms of the supply of components and It was not possible to overcome the decline with personnel. Although businesses reported extremely aggressive hiring, industrial labor shortages appeared to reach an all-time high by the end of the year.

Optimism in industry, as Rosstat surveys show, is also declining by the end of the year. In December, the index of business confidence in mining decreased relative to November by 0.1 percentage points, to 1.1%, in processing – by 1.5 percentage points, to 5.1%. In production, the increase in estimates of current demand for products offset the decrease in the share of optimists in assessing the prospects for production over the next three months. Processing enterprises have become worse at assessing both current demand and production prospects. Processing managed to increase the average level of capacity utilization – up to 62% (Rosstat’s methodology, the Central Bank data differ, although they also talk about records of loading in processing), but the number of employees is assessed as insufficient to implement production tasks, de facto the possibility of attracting new workers to processing from other industries due to wage increases have been exhausted.

Diana Galieva