Risks of Russia's GDP slowdown named
In the second quarter, the Russian economy grew by 4% compared to the same period in 2023, while in the first quarter it grew by 5.4%. The slowdown is quite noticeable, due to a combination of various circumstances. Many experts blame the Central Bank's tight monetary policy (MP) for the «slowdown», which increases the already significant key rate and thereby deprives businesses of affordable loans. But is it worth «putting all the dogs» on Elvira Nabiullina's department?
According to Rosstat, GDP dynamics were most affected by wholesale and retail trade turnover (+8.3% and +7.3%, respectively), passenger turnover (+7.3%) and manufacturing (+7.3%). However, at the same time, there was a decrease (in annual terms) in such indicators as transport freight turnover, the volume of industrial output and the volume of construction work. This predetermined the general slowdown in GDP growth.
Analysts point to the exhaustion of labor resources due to competition between the military and civilian sectors. Business is short of over 2 million workers, Rosstat notes, predicting a slowdown in the economy to 2% in the second half of this year, and to 0.5-1.5% next year. And Bloomberg reminds that the construction and banking sectors in Russia are no longer protected from the impact of high interest rates after the curtailment of preferential mortgage programs.
Meanwhile, the Central Bank's management rejected the criticism directed at it, which has become more frequent in recent months. As the deputy chairman of the regulator, Alexey Zabotkin, stated, the strict monetary policy performs a stabilizing function, preventing inflation from running wild and at the same time not restraining consumer demand, and therefore not hindering long-term economic growth.
“The main contribution to the slowdown in macrodynamics was made by two sectors — industry and transport, with the volume of railway transportation decreasing by 3% in January-June,” says Igor Nikolaev, chief researcher at the Institute of Economics of the Russian Academy of Sciences. – It was in the second quarter that all the negative factors that existed before manifested themselves to the maximum extent. Let me remind you that these are problems with payments for imports, which in the first half of the year decreased by 8.1%, to $130 billion. This is a “deferred” effect from the December increase in the key rate to 16%, restraining investment activity. This is an increase in the tax burden on business. In particular, the income tax rate has been increased from 20% to 25%, which forces entrepreneurs to freeze projects.”
The Central Bank is not the only one responsible for the situation with GDP, Nikolaev notes. If there were no objective circumstances, such as increased sanctions pressure, then the claims against the regulator would still be justified. Yes, the key rate of 16% (now 18%) played its role, but not a decisive one. We should also not forget: accelerating inflation is a very serious risk for business and investment activities. By raising the rate, the Central Bank makes the inflation dynamics more predictable and controllable.
«The monetary policy of the Bank of Russia has not yet fully achieved its goal, since there are many inflationary factors in the economy, and the regulator's tools are limited and essentially come down to managing the key rate,» says Alexander Shneiderman, Head of Sales and Client Support at Alfa-Forex. — At the same time, the effect of restraining economic growth is obvious. Business needs money, often credit, to develop. It is not easy for companies to obtain and use a loan now, since the current high rates exceed the profitability of the business, especially in the manufacturing sector. That is, most companies simply have no money to open new workshops, branches, or expand their product line. Especially if the enterprise does not apply for support measures and is not involved in state defense contracts.»
The slowdown in economic growth in the second quarter of 2024 may be associated with a decrease in the purchasing power of the population, consumer demand for goods and services due to high inflation. In addition, the macrodynamics could have been affected by the effect of the high base of the first quarter at 5.4%, believes financial analyst Fedor Sidorov.