Rosstat revealed the reason for the unexpected acceleration of the economy in 2023

The first estimates of the dynamics and structure of GDP growth in 2023, made by Rosstat, explain why the economy last year grew significantly above expectations – growth by one tenth of a percent exceeded even the unofficial estimates that the Ministry of Economy reported to the president. One of the key reasons for this is the maximum stock accumulation since 1995, without which GDP growth in 2023 would be noticeably closer to the long-term equilibrium trend.

According to Rosstat’s first estimate, GDP growth in 2023 was 3.6%, which is “above most expectations,” the Ministry of Economy states, adding that the figure “turned out to be the highest in the last decade (the only exception is post-Covid recovery growth in 2021).” . Thus, the expectations of the head of the department, Maxim Reshetnikov, are that the final estimate could bring the 2023 GDP growth rate closer to 4% (see “Kommersant” dated January 17), turned out to be quite realistic.

Although, along with the first estimate of GDP, Rosstat also published data on its production and use, the Ministry of Economy chose not to discuss them. However, it is precisely these statistics that make the reasons for the rapid economic growth unexpected a year ago more transparent: from the point of view of using 3.6% of GDP growth, it consists of a 4.4 percentage point (pp) increase in gross capital formation, 2.9 pp increase in consumption households, a 0.6 percentage point increase in government consumption – and a 4.4 percentage point reduction in net exports and other things, calculated Alexander Isakov from Bloomberg Economics. Gross capital formation consists of capital accumulation (investment) and inventories. According to Rosstat, their amount increased in 2023 by 19.8% with investments growing by 10.5%.

In other words, half of the contribution of accumulation to GDP growth came from the growth of inventories (the difference between the supply of goods and services—their output and imports—and their use).

The contribution of reserves to the use of GDP has reached its maximum (4.4%) since 1995, notes Mr. Isakov. Dmitry Polevoy from Astra Asset Management JSC writes in his personal Telegram channel that without taking into account this growth in reserves, GDP in 2023 would have grown by 1.2%, which is close to potential growth. “Seriously, what is important here is the specifics of attributing added value to reserves in the context of the growing load on the military-industrial complex and the “structural transformation” of the economy, but structurally the story does not look as good as it seems at first glance,” he clarifies.

Growth in capital investment, at least in terms of private sector investments, as noted in the Department of Research and Forecasting (DIP) of the Bank of Russia (see “Kommersant” dated February 7), also “turned out to be significantly higher than expected and was comparable to government investments.” For January-September 2023, the growth of capital investments from budgetary, own and loan funds amounted to 22%, 20% and 7% in annual terms, respectively, as estimated in the DIP. The reason is “a significant improvement in business sentiment and the need to ensure a structural transformation of the economy” (import substitution, restoration of frozen production, renewal and expansion of transport and logistics infrastructure, restructuring of business processes), according to the Central Bank. According to TsMAKP, the supply of investment goods has been declining since August 2023 – by December by 7.8% (see “Kommersant” dated February 2). The difference in the dynamics of capital investments and the supply of investment goods in the center was explained by “either the continuation of the construction boom in the third quarter (it died down in October), or such a specific component of investment as military equipment.”

The third significant factor of GDP growth in 2023—the boom in private consumption against the backdrop of a growing labor shortage and a rapid increase in wages—continues to worry the Central Bank.

According to his hypothesis, the supply of goods and services did not keep pace with the growth of private demand, due to which the main contribution to GDP production in 2023 among industries was made by trade (2.3 percentage points), with the contribution of processing only 1.2 percentage points. (and the negative contribution of the public sector and defense by 0.4 p.p.). As a result of rising wages, unemployment at the end of the year, as expected, turned out to be one of the lowest in the last 20 years – 3.2%, and the number of employees increased by 1.6 million people – to 73.6 million. Employment growth and personnel shortages increased the share of wages in the income of the population from 57.5% in 2022 to 59% – wages of employees provided 4.2 percentage points out of a 4.6% increase (income from entrepreneurship added another 1.4 percentage points, social payments – 0.4 percentage points, and income from property subtracted 3.2 percentage points from the total result), the Ministry of Economy estimated. They believe that all private consumption (goods, services, public catering) in 2023 increased by 6% (in TsMAKP – 5.9%).

The macroeconomic consensus forecasts of the Central Bank and FocusEconomics for 2024, updated on February 7, were slightly improved (in terms of consumption and investment) and assume growth of the Russian economy by 1.6%. “The shortage of personnel and the positive deviation of GDP from the equilibrium trend, coupled with fiscal risks, distinguish the current cycle from all previous ones. The Central Bank promises inflation of 4–4.5% in 2024, but the market still does not believe in this,” notes Mr. Polevoy. Meanwhile, the story with reserves qualitatively changes the picture of what is happening in the economy, complicating the task of the Central Bank.

Artem Chugunov