The economy looks decent in 1H23, albeit inflation accelerates

RUSSIA ECONOMICS - In Brief 02 Aug 2023 by Evgeny Gavrilenkov

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Rosstat reported that the output of the five basic sectors grew y-o-y by 8.9% and 3.3% in June and 1H23. Earlier Rosstat reported that industry was up by 6.5% and 2.6% over the same periods (also y-o-y). Agricultural output grew by 2.6% and 2.9% (same periods, also y-o-y). These numbers don’t look that bad—even accounting for a low base effect. Retail sales, which suffered a deep shock last year, grew y-o-y by 10.0% in June and 1.1% in 1H23. In 2023 retail sales will likely increase by about 5.5%, therefore indicating that household consumption is on the rise even on the back of a weaker ruble. One can also expect reasonably strong growth in consumer services, which were up by 3.8% y-o-y in 1H23. Construction grew by 10.0% y-o-y in June, which brought the 1H23 tally to 9.2% y-o-y. Generally, domestic consumption looks reasonably strong this year. However, on the external side net exports will likely suppress GDP growth as on the back of rising imports, the export side didn’t perform too well in 1H23. Still, GDP may grow even more than 2.5% this year. On the negative side one may point to accelerating inflation which will likely be reported at 4.4% y-o-y in July as Rosstat reported 0.13% w-o-w inflation on July 31 and the YTD increased to 3.5%. The final print on July’s inflation could differ but not significantly, as Rosstat uses different consumption baskets for calculating w-o-w and m-o-m inflation. Inflation m-o-m and w-o-w accelerated in recent weeks on the back of weaker ruble. At the same time, the latter was supportive for domestic manufacturers