Russian macro: moderate growth in 2023 driven by domestic demand
Assuming no new major external shocks in 2023, the economy may grow by over 1% this year. The current account will shrink while still remaining in surplus, and the budget balance will remain in deficit. Inflation may decelerate to below 5% this year, which will enable the Central Bank to cut the key rate.
Domestic demand will be robust while squeezing external demand will keep pulling the economy down. Mining contracted in 2M23 and generally remained on a downward path across the board, i.e., in coal, oil-and-gas, and metal ores extraction. Manufacturing performed better, having contracted in February by a mere 1.2% y-o-y amid uneven performance across its segments. Most export-oriented segments contracted. At the same time, many domestically focused production activities continued to recover m-o-m, albeit not yet necessarily y-o-y. February was the last month this year when economic indicators were strongly affected by a high base effect. From March, y-o-y growth in more sectors will start to turn positive—apart from mining and a few others.
Manufacturing and construction will remain the main drivers of economic growth this year on the production side of GDP. Economic growth will be also supported by activity in finance and insurance, and retail trade. It seems that Western sanctions are contributing to some structural transformation of the Russian economy in various ways. As accumulating FX reserves in the National Wealth Fund is no longer possible in “unfriendly currencies”, the government has started spending more money, including on investment in infrastructure. Having faced various constraints associated with traveling abroad, Russians have started spending more money locally, which helped the domestic service sector to expand.
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