Vulnerabilities found in Russian macroeconomic records for 2023

The Russian economy has a sufficient margin of safety to not only feel confident, but also move forward. Vladimir Putin justified this thesis by three circumstances: firstly, the high consolidation of society, secondly, the stability of the financial and economic system, and thirdly, the increase in the resources of the army and law enforcement agencies. Meanwhile, the macroeconomic achievements announced by the president, such as GDP growth of 3.5% at the end of the year, have pitfalls.

The President emphasized the historically low unemployment rate for Russia and unprecedented by world standards of 2.9%, but this figure is unlikely to serve as a reason for national pride. Quite the contrary: this is evidence of serious structural imbalances and an acute labor shortage. And the growth of the manufacturing industry by 7.5% is entirely due to colossal budget injections into the military-industrial complex. As an economic indicator, it gives little to other sectors, essentially closing in on itself, in its internal processes.

“The GDP growth rate of 3.5% announced by the president is a very high result,” says Alexey Vedev, director of the Center for Structural Research at RANEPA. – Although I expected that economic development would slow down in November and December. The overheating of the economy seems to be increasing, as evidenced by unemployment of 2.9%, indicating personnel problems. In general, many questions arise, and I would like to get answers to them. For example, our manufacturing industry has grown by a maximum of 1.5% per year over the past 10 years, but here it accelerated by 7.5%. What kind of powers are these, where did they come from, how are they used? The investment process is associated with the construction of new enterprises, the purchase and installation of equipment. Under normal conditions it takes six months to a year.”

Over the past 15 years, there has never been a time when investments in fixed assets grew by 10%. Back in September-October of this year, such a high level was not discussed within the budget process, Vedev notes. Accordingly, additional information is needed about the source of the money. It is unlikely that this is a market; rather, the funds were taken from the National Welfare Fund or the federal budget. As for the 8% increase in real wages, generated mainly by a shortage of specialists, this also has its downside. In particular, enterprises’ labor costs are increasing. And if inflation in the country remains at a high level, real wages will begin to decline in the future, purely arithmetically.

“Following the results of January-October, GDP grew by 3.2%, and added more than one percent to the figure of two years ago,” says Nikita Maslennikov, leading expert at the Center for Political Technologies. – Accordingly, the final annual growth of 3.5% looks quite logical. At the same time, there remains the risk of a fairly noticeable slowdown in the economy in 2024, since the current high rates are due to the task of ensuring the SVO and overheating of consumer demand. The main driver of industrial dynamics remains the manufacturing industry, although in monthly terms the pace is decreasing: September – 5.3%, November – 4.4%.”

As for investments, not everything is as smooth as it might seem. The general situation with staff shortages leads to additional costs and, in principle, reduces the investment capital of companies. Yes, there is profit, and quite a lot, but a significant part of it goes to servicing expensive loans. In general, Maslennikov notes, business has reached the point where it will no longer be able to raise wages for employees. It can be seen that in monthly terms the growth rate of real wages in the country is decreasing: in August it was about 9%, in September – 7.4%. The problem is aggravated by the creeping degradation of the education and healthcare systems in recent years, the state of which directly affects labor productivity. And if labor productivity growth is not ensured, the labor shortage in the economy will be felt more and more acutely. According to the forecast of the Yakov and Partners company, by 2030 it could be from 2 million to 4 million people.

Economic results for 2023 (in percent):

GDP growth 3.5

Industrial production growth 3.6

Manufacturing industry growth 7.5

Growth of investments in fixed assets 10

Inflation 7.5

Real wage growth (net of inflation) 8

Unemployment 2.9

Growth in enterprise profits 24