12 Mar 2024 18:53

Russian economy continues to grow in Q1, but more slowly than in Q4 - Central Bank analysts

MOSCOW. March 12 (Interfax) - The Russian economy has continued to grow in the first quarter of 2024, but the pace of growth on a seasonally adjusted basis is moderate than in the fourth quarter of 2023, the Central Bank of Russia's Research and Forecasting Department said in its latest Talking Trends bulletin.

"Economic activity continues to grow in the first quarter of 2024. However quarter-on-quarter growth is more moderate than in the fourth quarter of 2023, due partly to the statistical effect as a result of a slowdown in growth at the end of last year. The main growth drivers are still domestic and government demand amid subdued dynamics for external demand," the bulletin says.

Central Bank analysts estimated seasonally adjusted GDP growth in the fourth quarter at 1.2% compared to the previous quarter.

"Flash data and leading indicators point to stronger growth of the Russian economy in January-February following a certain slowdown in November-December last year. However, the resulting deceleration due to the effect of a high statistical base is likely to lead to formally lower seasonally adjusted GDP growth rates in Q1 compared with Q4 2023. At the same time, the positive dynamics in January-February prepared the ground for GDP growth in Q2 relative to Q1," the bulletin says.

"Such economic dynamics indicate the Russian economy is adapting to high nominal interest rates, previously seen only during periods of high inflation," it says.

"Possible reasons for this are the considerably elevated inflation expectations of economic agents, which have only recently begun to ease. This makes them less sensitive to the nominal level of interest rates. In addition, in view of the still-high quality of the loan portfolio and the growth of borrowers' incomes, banks are inclined to actively develop lending. In particular, non-price conditions for loan origination are weakening. In addition, concessional lending programs and sustained positive fiscal impulse play an important role in stimulating demand in the economy," the report says.

A continuing labor shortage which, according to surveys of industrial enterprises, reached an all-time high in January 2024, will keep competition for personnel strong even amid a downward adjustment in hiring plans.

"This may impede the alignment of labor productivity growth and wage growth, slowing the convergence of supply opportunities and consumer demand. In these conditions, it will be necessary to maintain tight monetary conditions for a lengthy period," the Central Bank believes.