The Russian economy is adapting quite well to the war and sanctions-related shocks. However, each new shock has not only short-term but also long-term consequences that affect "potential GDP," the Russian Central Bank experts write in their latest review "What the Trends Tell About." For example, the mobilisation and the emigration wave caused by it did not have a significant short-term effect but led to a labor market deformation, which will surely have long-term consequences. The relatively successful Russian economy's adaptation to the new realities occurs due to its consistent simplification, which will affect long-term growth prospects. The next shock of this kind is fraught with new oil sanctions, the Central Bank analysts write.
The Russian economy has relatively easily recovered from another shock provoked by the mobilisation and the forced departure of hundreds of thousands of citizens from the country, according to the "What the Trends Tell About" review, released by the Russian Central Bank's Research and Forecasting Department at the beginning of December. In general, economic activity has remained at the same level. The disinflationary effect on the consumer market did not last long. However, the tension in the labor market can be observed in a noticeable increase in median wages. The regulator warns that "over the next year or two [caused by mass emigration] the lack of a labor force will constrain potential GDP." (Re: Russia talked about how growth potential is being relocated from Russia to neighboring countries here.)
In the first "military" issue of " What the Trends Tell About," published in April, its authors introduced the concept of "structural transformation," which is now widely used by economists. Six months later, we can summarise its first results. In the course of this "structural transformation" Russia was able to partially rearrange the logistics and redirect export and import flows. Government orders played a significant role in stabilising the economy, while private investments during the war either shrank or paused. (How the state order in the military-industrial complex supports manufacturing, Re: Russia has described here.) Lending has also picked up in recent months.
However, the price for economic stabilisation is a decrease in its overall productivity and efficiency, since import substitution in most areas is based on outdated technologies at the expense of reverse-engineering and parallel imports. "The growth and development potential achieved through these [ stabilisation] mechanisms are unlikely to be significant — in the absence of realistic prospects for large-scale entry into world markets of products manufactured under technological constraints," the Central Bank analysts write.
The Russian Central Bank experts expect an inflationary pressure increase in the near future. Most of the factors that slowed down the price growth in October and November (a record harvest and a decrease in consumer activity amid the mobilisation) are ceasing to work. The only remaining factor is uncertainty, which makes people want to spend less and save more. Yet the survey's authors warn that "the observed high savings rate is unsustainable and could rapidly decline". In December, the annual inflation rate accelerated to 12.5% for the first time since May. In this regard, few experts expect the Central Bank to reduce the key rate at its next meeting on December 16.
Looking into the future, the authors of the review do not see scenarios where the Russian economy could begin to grow qualitatively. On the contrary, they warn of a possible new shock due to the ban on marine oil exports from Russia to Europe and the imposition of a price ceiling. However, these restrictions have only recently come into effect, and so far it is difficult to assess their impact. The Ministry of Energy, after reading the Central Bank review, hastened to declare that "the introduction of a price ceiling is not an event that will lead to significant consequences for the Russian economy".