Statistics do not hurry GDP – Kommersant

Rosstat estimated the decline in the economy in the first quarter of 2023 by 1.9%, which is better than the estimates of the Ministry of Economy and the Central Bank. The improvement in estimates was facilitated by the state order in processing, the growth of output in the agro-industrial complex, construction and services. The restoration of services has been one of the main driving forces in improving business dynamics, private incomes – and in accelerating inflation. But, despite the expectations of representatives of the sector, the demand for services in April-May began to cool. But even without this, the estimate of GDP in the first quarter does not allow analysts to assess the future growth of the economy at the level expected by the government.

In the first quarter of 2023, according to the first Rosstat estimate (production method), the economy contracted 1.9% yoy (growth 3% yoy) after contracting 2.7% in the fourth quarter of 2022. The decline was noticeably smaller than the preliminary estimates of the Ministry of Economy (minus 2.2%) and the Central Bank (minus 2.3%). The main sources of improvement in the annual dynamics of GDP were manufacturing, including those related to the military industry, agro-industrial complex, construction and services.

The negative contribution of services to GDP dynamics in the second-third quarters of 2022, already in the fourth quarter, according to CMASF, became neutral. According to the S&P PMI index, in the first quarter of 2023, the sector became the main driver for improving economic activity, and according to Rosstat, it became the main source of household income recovery from entrepreneurship against the background of restrictions on foreign tourism and the reorientation of the population from goods to services – in many respects, catering .

Under these circumstances, service prices, which have lagged behind commodity prices since COVID-19, began to pick up in the second half of 2022 and became the main driver of inflation.

According to Alexander Isakov of Bloomberg Economics, 2.3% of annual inflation in April 2023 is entirely responsible for services, and 0.8% of inflation in services in April is a pace comparable to its dynamics in 2022, 2014 and 2008. “Competition with imports restrains the rise in prices in goods – parallel imports have allowed us to maintain discipline in the sector. In services, the level of competition has seriously decreased and there is no such external discipline,” the analyst notes.

Economists at the HSE Center for Business Research found a boom in business confidence in the service sector in the first quarter of 2023, especially in tourism, insurance, pawnshops, communications, and dentistry. The main driver is the expected demand in the next quarter (the indicator improved over the quarter by 20 percentage points at once). “If the identified positive trends in the economy (growth in wages and lending.— “b”) and the expected positive changes will turn into a steady trend, then around the end of summer we can see the transition of the population from the savings model of behavior back to the consumer one. Such restructuring with a lag of two or three months will definitely have a positive impact on the demand for services in such capital-intensive sub-sectors as tourism, insurance, transport, entertainment and recreation, etc.,” the HSE believes.

Meanwhile, according to the Ministry of Economy, in April, the volume of seasonally adjusted paid services stopped growing (after growing by 1% mom in March), although GDP growth excluding the seasonal factor was 1% against a decrease of 0.3%, respectively. According to “Sberindex”, the nominal spending of the population on goods and services from May 8 to 14 increased in annual terms by 7.8% year-on-year (11% and 15.4% in the previous two weeks). The situation is deteriorating everywhere, but, as analysts say Telegram channel MMI, “particularly noteworthy is the slowdown in the services sector.

It looks like the outstripping growth is coming to an end here, which is likely to lead to an easing of inflationary pressure,” experts believe.

“The opening of Georgia will reduce inflation in services due to increased competition in the sector,” adds Alexander Isakov. In April, PMI pointed to a slowdown in the growth of business activity and in services.

According to analysts Telegram channel “Hard numbers”, for the first quarter, seasonally adjusted, GDP grew by 0.9% (3.9% for the fourth quarter of 2022) – and while maintaining the dynamics, “for the whole of 2023 it will be about 0.8% in annual terms” , they note. The Ministry of Economy expects that GDP will grow by 1.2%, calling this estimate conservative, the Central Bank expects growth in the range of 0.5-2%. Bloomberg Economics estimates that first-quarter GDP rose 0.6% seasonally adjusted after two quarters of 1% growth, and, with production cuts, will grow “about 1% in 2023 on rising consumption and government spending – adjusted for losses from a reduction in production,” they believe there.

Artem Chugunov