20 Jun 2024 15:55

Leap year factor prevented consensus about extent of Russian economy overheating in Q1 at Central Bank meeting - discussion summary

MOSCOW. June 20 (Interfax) - The leap year factor prevented a consensus being reached at the Central Bank of Russia's June 7 board meeting about the extent to which the Russian economy overheated and to which GDP growth deviated from the baseline scenario in Q1 2024, the regulator said in a summary of the discussion.

"The economy grew 5.4% year-on-year in Q1 2024, more than the Bank of Russia forecast. According to current data, economic growth slowed slightly in April, but remained high. Household consumption in Q1 2024 is estimated to have increased more than the Bank of Russia expected. According to current data, consumer activity remains high in Q2 2204, although there are signs of a slowdown," the Central Bank said.

"Participants agreed that there was insufficient data to conclude that economic growth in Q1 2024 significantly deviated from the baseline scenario. GDP dynamics in Q1 2024 are corrupted by the leap year calendar effect. Estimates of this factor's contribution to GDP growth were the subject of debate," the regulator said.

"The range of estimates of the leap year effect that was discussed suggests that the sequential rate of economic growth [compared to the previous quarter, seasonally adjusted] could either be close to the base scenario, that is it slowed compared to the Q4 2023, or be higher than it," it said.

The Central Bank said that according to current data, business activity slowed somewhat in April. "Signs of this in certain regions were noted by representatives of the main directorates [of the Bank of Russia]: a drop in the business climate index, expectations of future demand. As a result, a slight slowdown in economic activity can be expected in the future," the review says.

Participants also agreed that tensions in the labor market and faster price growth pointed to a significant positive output gap, but "at the same time, it is not yet possible to draw a definite conclusion about the dynamics of the gap."

"Some of the discussion participants believed that the overheating of the economy could have intensified in the first quarter. They pointed to an increasing labor shortage, accompanied by faster wage growth, as well as signs of a reversal in inflation dynamics in April-May. In their opinion, the leap year factor had little impact on economic growth in the first quarter. Other participants, on the contrary, believed that there was not enough data to conclude that overheating was intensifying. In their opinion, the leap year's contribution to economic growth could be significant. In addition, the high rates of economic growth may be partly due to the ongoing ramp-up of its potential as a result of both an increase in production capacity and an increase in labor productivity, as evidenced, in particular, by many companies surveyed by the Bank of Russia," the summary says.