Russia: Activity records largest expansion since Q4 2021 in Q3
Growth picked up in the third quarter, with GDP increasing 5.5% on an annual basis, according to a preliminary estimate (Q2: +4.9% year on year). Q3’s reading marked the best result since Q4 2021.
Although the release did not include a breakdown by subcomponents, available monthly data suggests that the upturn was broad-based. On the production side, industrial output, wholesale and retail trade, construction activity and agricultural production all recorded sturdy growth in the third quarter. On the expenditure side, rising wages, booming retail sales and a record-low unemployment rate pointed to yet another strong upturn in domestic demand in the quarter.
Less positively, merchandise exports slumped by nearly a third year on year in Q3, contrasting a double-digit increase in imports and pointing to a worsening external sector performance. This was chiefly due to international sanctions and lower exports of crude oil and natural gas.
Commenting on the economic outlook, analysts at Goldman Sachs said:
“We believe loose fiscal policy is the main driver of the significant economic expansion […]. Both we and the CBR view the Russian economy as running above potential and this, rather than the Ruble, is the main driver behind the strong inflationary pressures. […] Although we expect GDP growth only to slow marginally to an above-consensus +2.1% in 2024 and further to +1.3% in 2025, we expect the structure of growth to rebalance sharply. Exports are likely to recover somehow post the one-off fall this year, but we think domestic demand growth will slow towards the 2.0% rate that we consider trend growth.”
Meanwhile, analysts at EIU were more downbeat:
“We remain skeptical of the accuracy of government-reported data, especially given their limited availability. Our assumption is that Russia’s economy will remain under severe downward pressure throughout our forecast period as a result of Western sanctions. We expect the economy to grow by a still-subdued 0.7% in 2024, following estimated growth of 0.6% in 2023.”