Apr 17: Phil Rosen, Russia's economy is worse than Moscow claims
As published by Yahoo News on April 14, 2023
Russia's economy is worse than Moscow claims because military spending covers up how much the private sector is shrinking
By Phil Rosen, Yahoo News, April 14, 2023
Russia's GDP figures may not tell the full story, and the uncertainty of war leaves reason to be cautious about official data, experts say.
Alternative indicators measured by two economists for the Centre for Economic Policy Research suggest the nation's slowdown is worse than stated.
Higher military spending has covered up weaker retail sales and a stagnation in the housing market, according to economists.
The Russian economy isn't faring as well as Moscow's data suggests, and experts say huge military spending is masking the slowdown in the private sector.
Policy economist Hanna Sakhno told Insider that the dynamics of Russia's GDP figures reflect that war-time spending, and therefore paint an incomplete picture. The government's official data, she said, should be taken with "caution."
"This is visible in our alternative tracker of domestic economic activity: retail sales have been down, a plunge in domestic flight purchases, and stagnation of the housing market," Sakhno said.
"These are the things that businesses deliver and consumers purchase in an economy, and they have been absorbing the impact. Our tracker shows a contraction of the Russian economy ahead of the official figures release precisely because we use high-frequency indicators from the private economy."
In a recent report for the Centre for Economic Policy Research, Sakhno and European Central Bank economist Adrian Schmith wrote that these alternative indicators provide additional context to the war economy.
Vehicle sales, imports, credit growth, home prices, retail sales, and air traffic, among others, were among the inputs used for their alternative economic gauge.
Taken from the report, the chart below highlights how the plunge in household spending was a main driver of the contraction seen in March 2022, the first full month following Russia's invasion on Ukraine. The authors noted that this steep decline reflects sanctions' negative impact on Russian imports.
"In recent months, official output indicators have remained stable or even improved, buoyed by war-related manufacturing," the authors wrote. "However, this stands in contrast to our tracker which has gradually declined, signalling a loss of momentum in the Russian economy compared to official statistics."
The real estate sector and business activity has continued to deteriorate leading up to February 2023, they added, which could point to a weakening labor force and diminished production capabilities of Russian companies.
While global forecasters remain torn in their assessment of Russia's economy, Sakhno said she anticipates it to keep adjusting as war drags on. Historical evidence says that, even under long-term dictatorships, economic systems are rigid and hard to break, she explained.
"I expect local businesses will continue filling the gaps after the exodus of Western companies and disrupted supply chains — it is high time for them to keep outsourcing production input from friendly neighbours and China," Sakhno said. "The living level will deteriorate over time, which might increase social tensions in the country, but the outcome is unpredictable."
Read the original article on Business Insider