The economy keeps growing amid soaring domestic demand and overheating

RUSSIA ECONOMICS - In Brief 01 Nov 2024 by Evgeny Gavrilenkov

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Rosstat reported that in 9M24, the output of the five basic sectors (industry, agriculture, construction, transportation, and trade) was up by 4.9% y-o-y. It grew by 3.0% in September and posted clear signs of a deceleration. The latter looks organic amid a high base in 2H23. Industrial output expanded y-o-y by 4.4% and 3.2% in 9M24 and September. Industrial output, seasonally adjusted by Rosstat, was flat in September. The mining segment posted y-o-y contraction by 0.6% in 9M24 and 1.8% in September alone - a downward trend has been recorded since early 2022. In contrast to mining, manufacturing grew by 7.9% and 6.6% (both y-o-y in 9M24 and September). Agriculture was down by 2.3% y-o-y in 9M24 but grew by 0.2% y-o-y in September. Growth in construction slows, having posted a mere 2.5% y-o-y growth in 9M24, as housing construction was up by 1.8%. Retail sales continue to grow fast, albeit with some signs of a deceleration as well. In 9M24, they were up by 7.9% y-o-y. Strong growth in non-food retail (up by 9.2% y-o-y over the same period) was driven by expanding credit to households and rapid nominal wage growth. In August (most recent available data), nominal wages were up by 17.4%. In 8M24, they grew by 18.1% y-o-y. Real wages grew by 7.7% and 9.1% (both are y-o-y in August and 8M24). As unemployment is slightly above 2% and the capital stock is not expanding that fast, there is a clear mismatch between the demand (not least driven by unprecedented government spending) and the supply side. Hence, inflation is high – by year-end, it will likely stay between 8.5% and 9.0%. The CBR remains hawkish amid such a backdrop, as it raised the key rate to 21%. In 2025, economi...