How the Russian economy manages to show growth, by Olga Samofalova for VZGLYAD. 08.04.2023.
Despite the sanctions and the SVO, the Russian economy continues to perform better than expected. The Russian president spoke about what has become the main engine for the growth of our economy in 2023. First of all, this is the industry, which fulfills the increased orders of both Russians and the defense industry. Real incomes of the population showed the maximum growth in two years. How does it work?
The Russian economy continues to perform better than expected. In the first quarter, Russia's GDP grew by 1.5%, in the second quarter - by 4.6%, and in June - by 5.3% (estimated by the Ministry of Economic Development). Economic activity has been high for two months, the main industries show growth.
If last year the growth driver of the Russian economy was the construction sector, this year the engine is the industry.
Russian industry is gaining momentum, as evidenced, in particular, by employment rates and wage growth. “Employment remains at the level of 2021, and it is about 10 million people - this is 14% of all employed in our economy. This is a decent level. Wages are growing: in May, they exceeded last year's level by more than 20 percent, in nominal terms - 69.2 thousand rubles per month,” Russian President Vladimir Putin said. In general, the Russian industry receives orders and develops new directions, he added.
In turn, the head of the Ministry of Industry and Trade, Denis Manturov, stressed that the growth rate of manufacturing could outpace the planned figures.
According to the president, at least 1/3 of the growth in industrial production in the Russian Federation is due to the growth in consumer demand, and 2/3 is provided by the defense and related industries. Empty niches after the departure of Western companies were occupied by domestic manufacturers.
The growth of the construction sector helped the economy last year. Here, state programs of preferential mortgages played an important role, and the demand for housing was supported as a reliable and protective asset for citizens' savings in the face of geopolitical and economic uncertainty, said Vladimir Chernov, an analyst at Freedom Finance Global. This year, industry has really become the driver of the Russian economy. In many areas of industrial production, an import substitution program is actively developing, for example, in the field of auto and mechanical engineering, Chernov says.
For example, AvtoVAZ is increasing production volumes and is gradually replacing imported components. In the Leningrad Region, the former Nissan plant was bought out, which will now also localize Russian car production, other production sites are also being bought out, the production and production of Moskvich cars, etc. has been established.
Gradually solve their problems and oil and gas companies. “For example, gas turbines, which had big problems last year against the backdrop of external restrictions for Siemens, will now be built in Russia under a Chinese license, which was purchased in the Celestial Empire from the USSR,” recalls Chernov.
“Import substitution is taking place at a rapid pace, but the volume of products that need to be replaced is so large that the pace does not seem high,” the expert believes.
“The general package of measures to support the economy and business, which in 2022 amounted to about 1 trillion rubles, had a revitalizing effect on the economy. Last year, economic growth was provided by construction and wholesale trade, which is associated with a shorter investment cycle compared to machine-building and metallurgical complexes. By 2023, investment infusions into the manufacturing sector of the economy were fully utilized and made it possible to increase production, primarily in the machine-building sector.
In turn, mechanical engineering through cooperative chains revived the metallurgical sector, which also demonstrates acceleration from month to month,” says Anatoly Kolesnikov, Associate Professor of the Department of Corporate Governance and Innovation at the Russian University of Economics. Plekhanov.
An important role is played by financial injections into the economy from the National Wealth Fund for structural reforms. We are already seeing the first effect. “The structure of import substitution in the manufacturing sector has been significantly rebuilt, when under the conditions of sanctions restrictions, domestic enterprises are forced to replace the components and materials that have fallen under the restrictions with their own efforts,” says Anatoly Kolesnikov.
“Statistics by industry shows that this year one of the main drivers of high economic growth is engineering, as well as metallurgy and the mining industry with growth rates of 40.2% and 17.7% year-on-year. At the same time, a number of other sectors – construction, agriculture and industrial production – have seen a predictable slowdown due to the weakening of the low base factor,” says Natalya Lavrova, chief economist at BCS Mir Investments.
At the same time, retail trade is growing - by 10% in June against 9.3% in May, which indicates an increase in consumer activity.
“The labor market remains tight – as a result of a shortage of personnel, a record low unemployment rate has fallen to 3.1% in June. This is clearly supporting real income growth, which reached 5% in the second quarter of 2023, the highest growth in two years. This, combined with high lending activity, is driving retail growth faster", Lavrova says.
“The many times increased demand for military products is also one of the drivers of the observed economic growth. Enterprises of the military-industrial complex traditionally act as a backbone element of the so-called Keynesian model of economic regulation due to their high-tech level and maximum integration into the system of intra-industrial cooperation and allow realizing the maximum multiplier effect,” Anatoly Kolesnikov notes.
However, economists warn that the growth structure of the Russian economy depends on several sectors and relies on the favorable effect of a low base. In the second quarter of last year, the economy fell by 4.5% and then quickly recovered in the second half of 2022. Therefore, the low base effect will disappear soon. Plus, the cycle of raising the rate by the Central Bank may begin to dampen lending and investment activity. According to Lavrova, Russia's annual GDP growth will slow to 3.7% in the third quarter and to 1.7% in the fourth quarter. “However, the continued strong economic performance in the first half of the year forced us to raise our forecast for 2023 to around 2% yoy,” Lavrova said.
https://vz.ru/economy/2023/8/4/1224223.html
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