Russia's GDP trend in 2023 may be better than baseline forecast - Central Bank analysts

MOSCOW. March 7 (Interfax) - Economic activity in Russia increased in early 2023 in the absence of new significant challenges, and the GDP trend in 2023 may turn out better than expected in the Central Bank's baseline forecast, analysts from the CBR's Research and Forecasting Department said in their latest Talking Trends bulletin.

"According to preliminary data, generally positive dynamics in the Russian economy accelerated at the beginning of the year on stronger domestic demand. At the same time, negative trends prevailed in export industries, especially mineral extraction," the bulletin says.

"In the absence of new significant challenges for the largest sectors and households, Russian GDP dynamics in 2023 may turn out better than assumed in the Bank of Russia's baseline scenario," it says.

The baseline scenario for growth is between negative 1% and positive 1%.

Russia's voluntary cut in oil output by 0.5 million barrels per day from March will start to influence GDP from Q2 2023. "Increasing restrictions on the supply of the main Russian export commodities by unfriendly countries has led to a certain decrease in mineral extraction. The voluntary reduction in oil production by 0.5 million barrels per day since March will cause an additional decrease in output in related manufacturing industries, trade and transport, which will be fully reflected in the level of GDP in the second quarter of 2023 and beyond," the bulletin says.

The contribution to aggregate demand on the part of fiscal policy will "at least partially neutralize the negative impact on aggregate demand from the external sector," it says.

Signs of an expansion of private, primarily consumer demand and output in consumer industries began to appear in the first quarter of 2023 on the heels of the expansion of government demand seen at the end of 2022.

"The expansion of consumer activity is being facilitated both by a reduction in anxiety and continuing increase in incomes against the backdrop of growing competition for employees. An improvement in the balance of assessments of the current financial situation may lead to a gradual decrease in the rate of savings from an elevated level, stimulating consumption growth," the bulletin said.