Rosstat published data on the use of GDP in the first quarter of 2023

Rosstat data on the use of GDP in the first quarter completes the picture of the sources of economic recovery after the failure of 2022. The slowdown in the decline in GDP, which was 1.8% in the first three months, was facilitated by the recovery of inventories and the growth of government consumption, which offset the sharp contraction in net exports. The factors behind the accelerated growth of the economy in the second quarter are largely related to the state military order, but analysts doubt that they will be able to ensure the 2% GDP growth now expected by the authorities in 2023.

According to Rosstat data released yesterday, the share of spending on final consumption in the structure of GDP use increased significantly over the year – from 65.7% of GDP in the first quarter of 2022 to 76.7% in the first three months of 2023. For households, the indicator increased by 3.8 percentage points (p.p.) – up to 51.9%, for the state – by 7 p.p. – up to 24.1%. The share of gross capital formation increased from 15.9% to 18.8%, including fixed capital accumulation from 13.2% to 15%. The share of inventories increased from 2.7% to 3.8%. At the same time, the share of net exports declined rapidly amid a recovery in imports, from 18.4% to 4.5%.

In annual terms, in the first quarter, final consumption expenditures increased by 3.5% due to an increase in government demand by 13.5%, while household consumption decreased by 0.1% due to a decrease in household demand, mainly for non-food products. Gross capital formation increased by 11.4%, mainly due to the increase in inventories, gross fixed capital formation (investment) increased by 0.6%.

According to Alexander Isakov from Bloomberg Economics, a negative contribution to the dynamics of GDP (a decrease by 1.8% in annual terms) in the first quarter was made by net exports (minus 5.5 p.p.) and the statistical discrepancy – minus 0.5 p.p. The contribution of household consumption and investment was close to zero, and the recovery of inventories (plus 1.8 percentage points) and public sector consumption (plus 2.3 percentage points) kept the economy from falling. “The picture of recovery after the shock is the opposite of that after similar shocks in 2014-2015. At that time, the economy was supported by the growth of net exports, that is, partly by import substitution during fiscal consolidation. Today, the picture is mirrored: the growth of government spending compensates for the losses in GDP from the failure in net exports, including against the backdrop of growing imports. Recovery of stocks is the only element that unites the two pictures of adaptation, ”the economist notes. As a result, restocking was the first and public sector consumption the second reason for the slowdown in the annual decline in the economy compared to the fourth quarter of 2022, offsetting the decline in net exports.

Recall that in May, the annual GDP growth rate became positive – 0.6% according to the Ministry of Economy. The authorities increasingly began to predict economic growth for the year, close to 2% (see Kommersant of July 3). Prime Minister Mikhail Mishustin also cited this figure at a meeting with President Vladimir Putin on Tuesday. Meanwhile, analysts of the MMI Telegram channel record that in May “the dynamics of the “military” industries was several times higher than the “civilian” ones, and many “civilian” industries received support from military orders. What will happen to all this production when hostilities are over?” they ask. What happened a sharp jump in wholesale trade from 5% to 14.5% year-on-year they call “oddity, not explained by the base effect.” This factor alone added at least 0.5 percentage points to the 5.5% GDP growth in May. “After such a high performance in May, the GDP estimate for the second quarter is about 5% yoy. Concerns about the reliability of statistics,” economists conclude. The current FocusEconomics consensus forecast is 2.3% economic growth in the second quarter.

Alexander Isakov believes that economic growth in 2023 will be 1.5-1.7%. He expects that the recovery may slow down in the second half of the year due to a decrease in the contribution of budget expenditures to it and a decrease in oil production. This will amplify the negative contribution of net exports and monetary tightening, and slow the recovery in consumption, much of which is financed by credit growth. In June 2023, the “proxy GDP” Composite PMI was still pointing to a growing expansion of business activity at the expense of the services sector. However, analysts are still noticeably more pessimistic – the July consensus forecast for growth this year from FocusEconomics has only been raised from minus 0.8% to 0%.

Artem Chugunov