Russian economy enters 2023 with at levels of activity higher than recently expected, price caps having limited impact - CBR analysts

MOSCOW. Jan 31 (Interfax) - The Russian economy saw activity ramp up at the end of 2022 and entered 2023 at higher levels than expected a quarter ago, with the impact of the oil price cap limited, according to the Talking Trends bulletin prepared by the Research and Forecasting Department of the Central Bank of Russia (CBR).

"The Russian economy entered 2023 with a higher level of economic activity than expected one or two quarters ago. Increased budget expenditures due to the expansion of the budget deficit will additionally support demand in the economy, although their fiscal multiplier (i.e. contribution to medium-term economic growth) may be low due to a shift in the expenditure structure towards less productive ones," the bulletin said.

"Judging by preliminary indicators, activity in the Russian economy ramped up at the end of 2022, primarily in industry, agriculture and consumer services," Central Bank analysts said.

Positive economic trends in November-December 2022 were largely driven by export and government demand, the bulletin said.

"Growth in agriculture translated into expanded production in the food industry. In addition, a shift in consumer demand from goods to services led to growth in this segment of the economy. In the event of a stronger recovery in consumer demand, overall economic activity could strengthen," the survey said.

At the same time, Central Bank analysts noted that the decline in profits in the non-financial sector of the economy and continuing geopolitical tensions "adversely affect the investment activity of the private sector. The slowdown in the global economy and the export restrictions being put into effect reduce demand for Russian exports, which carries risks for the current positive economic dynamics," the CBR analysts said.

At the same time, the Central Bank stresses that "the impact of price ceilings for Russian oil and oil products on the volume of their export supplies seems limited based on the current market situation.

"Structurally, based on the quantity and quality of labor resources and fixed capital, as well as the technological level, the Russian economy looks somewhat weaker than in 2021. However, this should not prevent it in 2023 from increasing output in the manufacturing industries and some other sectors, with possible stagnation or decline in a number of others. At the same time, in the case of a return to the consumer model of behavior of households and a decrease in the savings rate, positive processes in general economic trends in 2023 are possible with a simultaneous increase in inflationary pressure," the Central Bank's Research and Forecasting Department said.