On Wednesday, Rosstat published economic indicators for September and 9M2023. According to the Ministry of Economic Development, with the exception of the seasonal factor, GDP grew in September (+0.3% SA) compared to +0.4% SA in August, and in annual terms, GDP growth in September is estimated at 5.2% YoY, as it was a month earlier. For 9M23, GDP, according to the Ministry of Economy, grew by 2.8%. The most significant growth rates are shown by the manufacturing industry, wholesale trade, an unexpected jump in output was found in agriculture.

The growth of retail trade turnover accelerated to 12.2% YoY, however, the effect of the low base of September 2022 (weakening of consumer demand after the announcement of mobilization) should be taken into account here, in relation to the same period 2 years ago (2021), according to our assessment, the dynamics deteriorated slightly compared to July-August.

The annual growth rates of other consumer sectors (paid services to the public, restaurants and cafes) are slowing down. Tension in the labor market remains high, unemployment has been at a historic low of 3.0% for the third month in a row, which supports the competitive race of wages (accelerated in nominal and real terms in August). Wages and output are growing most strongly in the manufacturing industry, especially in industries associated with the military-industrial sector and import substitution. The estimates of the Ministry of Economic Development show that there was a decrease in construction, freight turnover, wholesale trade, paid services to the population compared to the previous month, taking into account the seasonal factor. There was a near-zero dynamics in mining.

According to Rosstat, the growth of real disposable incomes of the population in 3Q23 amounted to 5.1% YoY (however, they are still below the level of 2013 and 0.5% lower than in 3Q21). In the structure of incomes of the population in the third quarter of 2023, compared with the corresponding period of 2022, the share of wages, income from entrepreneurial activity and other cash receipts increased with a decrease in the share of social benefits and income from property. The increase in savings in 3Q23 (+900 billion rubles) slowed down compared to the 1st and 2nd quarters, while in the structure of cash savings (October estimate), the share of deposit balances increased to a maximum for the year (73.8%), and the share of cash balances decreased to a minimum for the year (26.2%). A sharp tightening of monetary policy and an increase in bank deposit interest rates should lead to an increase in households' propensity to save and slow down consumption, including imports, easing pressure on the ruble exchange rate.

According to our estimates, the mining industry, wholesale trade, retail trade in non-food products, cargo turnover of transport have not yet fully recovered to the level of 2 years ago. Manufacturing industry, construction, agriculture, catering, paid services are significantly higher than the level of 9M21.

The data for 3Q23 (the official estimate of GDP from Rosstat has not yet been published) show the continued high dynamics of economic activity. Taking into account the actual growth rates for 9M23 (estimated by the Ministry of Economy), GDP growth at the end of the year, according to our estimate, may amount to 2.5-2.7%. The effect of a significant increase in the Central Bank's key rate (from 7.5% in July to 15% in October) should lead to a significant cooling of lending, domestic demand and, as a result, to a slowdown in economic growth. However, this effect may manifest itself closer to the end of the year and in 2024. Last Friday, the Central Bank tightened its monetary policy forecasts for the next 3 years (a double-digit key rate is forecast for next year). Economic growth may slow down significantly (our estimate for 2024 is 1.2-1.3%), but the growth of budget expenditures, preferential lending programs and a scarce labor market may keep from recession.

Indicator, change, %/period September 2023 / September 2022 September 2023 / September 2021 9М23 / 9М22 9М23 / 9М21
Industrial production 5,6 3,5 3,3 4,7
Mining industry -0,7 -2,3 -1,2 1,2
Manufacturing industry 10,9 8,5 7,1 8,1
Retail trade 12,2 0,0 4,7 -0,8
Food products 5,7 1,3 2,3 1,5
Non-food products 18,6 -1,0 7,0 -2,6
Wholesale trade 21,2 -6,9 7,7 -8,3
Public catering 7,2 14,3 13,1 20,5
Paid public services 4,1 6,8 4,2 11,1
Cargo turnover 1,4 -5,4 -1,3 -2,5
Agriculture 12,7 29,3 1,3 13,2
Construction 8,4 11,4 8,8 13,6
Real wages (August, 8M) 9,5 7,5    
Unemployment (level, %) 3,0      
Real disposable income (3Q, 9M) 5,1 -0,5 4,8 3,4

Source – Rosstat, calculations of FG FINAM

In September, the growth of industrial production accelerated in annual terms to 5.6% after 5.4% in August. Compared to the previous month, taking into account the seasonal and calendar factors, industrial production increased (for the first time since May) by 0.3% SA. The growth is based on the manufacturing industry again (10.9% YoY) with a slowing decline in the mining industries (-0.7% YoY). Within the manufacturing industry, the areas often associated with the state defense are leading ("computers, optics and electronics" +33.5%, "other vehicles and equipment" +45.6%, "metal products and constructions" +47.5%), recovery growth continues in the automotive industry (vehicles, trailers and semi-trailers +56.3%), furniture production (import substitution, rapid mortgage growth) +38.6%. The chemical industry shows good results (+14.7%). According to the results of 9M23, the same computers, optics and electronics (+34.5%), finished metal products (+30%), electrical equipment (+22.2%), other vehicles and equipment (+31.4%) are in the lead.

  September 2023/ September 2022, % 9M23 / 9M22, % September 2023/ September 2021, % 9M23 / 9M21, %
Mining industry -0,7 -1,2 -2,5 0,7
Coal mining 2,1 1,9 -0,2 -0,6
Metal ores mining -1,7 -2,2 -8,1 -5,9
Other minerals -5,7 -3,3 -7,4 2,3
Services in mining 3,7 -0,2 9,3 9,5
Manufacturing industry 10,9 7,1 6,5 6,6
Food industry 6,7 6,5 8,6 6,9
Beverage production -1,8 0,9 2,2 5,0
Production of tobacco products -18,0 -2,1 -14,6 -13,3
Textile production 2,6 -1,0 -10,3 -10,8
Clothing production 2,8 6,0 8,6 5,3
Production of leather and leather products 17,4 11,1 8,8 11,0
Timber industry and woodworking (except furniture) 11,0 -3,3 -11,0 -12,6
Paper production -3,6 -2,7 -1,6 -1,4
Printing and copying services 10,6 -1,2 7,7 9,3
Production of coke and petroleum products -0,6 3,9 -0,7 3,3
Production of chemicals and chemical products 15,1 4,8 9,5 1,4
Production of medicines and materials used for medical purposes 12,8 -3,3 26,2 17,5
Production of rubber and plastic products 14,8 9,5 13,1 8,8
Production of other non-metallic mineral products 5,4 2,2 1,1 5,1
Metallurgy -0,1 3,8 -2,5 4,2
Production of finished metal products, except machinery and equipment 47,5 30,0 39,5 34,6
Manufacturing of computers, electronic and optical products 33,5 34,5 37,5 40,7
Production of electrical equipment 16,0 22,2 10,8 17,2
Manufacturing of machinery and equipment not included in other categories 11,8 4,6 4,2 9,8
Production of motor vehicles, trailers and semi-trailers 56,3 5,6 -24,7 -40,1
Manufacturing of other vehicles and equipment 45,8 31,4 22,3 26,1
Furniture manufacturing 38,6 21,7 30,0 20,6
Manufacturing of other products 21,7 8,4 13,9 6,3
Maintenance and installation of machinery and equipment 20,9 4,6 -3,3 0,8

Source – Rosstat, calculations of FG FINAM

Consumption shows conflicting signals. According to the Ministry of Economy, growth accelerated – "the total turnover of retail trade, catering and paid services to the population in September showed an acceleration to +10.0% YoY in real terms after +9.4% YoY a month earlier (+2.1% by September 2021). With the exception of seasonality, growth by +1.0% M/M SA after +0.9% M/M SA a month earlier."

According to Rosstat, retail trade turnover accelerated to 12.2% YoY in September, exceeding the consensus forecast (+11% YoY) and accelerating compared to August (+11.0% YoY). However, the effect of the low base of September 2022 could have affected here, when the indicator collapsed by 10.9% YoY (-9.4% YoY in August 2022) after the mobilization was announced. According to our estimate, in comparison to the level of the corresponding period of 2021 (2 years ago), retail trade turnover practically did not change in September (in August it was 0.57% higher). For food products, retail trade turnover in comparable prices in September accelerated to 5.7% YoY (August 5.1% YoY), for non-food products accelerated to 18.6% YoY (August 16.8% YoY). Retail trade turnover in non-food products lagged behind the level of 2 years ago in comparable prices by -0.97%. For 9M23, retail trade turnover increased by 4.7% YoY, of which the growth for food products was 2.3% YoY, for non-food 7.0% YoY.

The acceleration of price growth following the weakening of the ruble, as well as a slowdown in consumer lending (as a result of a significant increase in the Central Bank's key rate and tightening of macroprudential regulation; both continued in October) could contribute to some cooling of non-food consumption in September.

The growth of the paid services market continues to slow down in annual terms – to 4.1% YoY after 5.0% in August (the estimate was revised down from the initial 5.2% YoY) and July 5.2% YoY.

The growth of turnover of restaurants, cafes and bars in September in real terms also slowed down to 7.2% YoY after +8.4% YoY in August and 12.1% YoY in July. For 9M23, the indicator increased by 13.1%.

Consumption was supported this year by the accelerating growth of wages of the population, which is based on a record labor shortage , deferred demand, as well as high growth rates of retail lending. 

The tight monetary policy of the Bank of Russia is expected to lead to a slowdown in consumption growth in 4Q23 and in 2024 (the October forecast of the Central Bank even suggests a reduction in household final consumption spending next year by 1-2% after an increase of 5.5-6.5% this year).

Labor market – tension persists. The unemployment rate in September remained at a historic low of 3.0% for the third month in a row. The number of the labor force and the employed population in September decreased by about 200 thousand by August. 

The number of employer vacancies has been slightly decreasing for the third month in a row, however, due to the reduction in the number of unemployed people, the load of the unemployed population per 100 declared vacancies has updated the historical minimum, dropping to 27.5%. For comparison, in September last year it was 41%.

The growth of the average nominal salary in August (Rosstat discloses these data with a lag of 1 month) accelerated to 15.1% YoY (July +13.9% YoY), and despite the acceleration of inflation, wage growth accelerated in real terms to 9.5% YoY versus 9.2% YoY in July. For 8M23, the average salary increased in nominal terms by 13.2% YoY, in real terms – by 7.5% YoY. As the Central Bank has repeatedly noted, the growth of real wages at a rate higher than the growth of labor productivity is a pro-inflationary factor.

The maximum growth rates of salaries for 8M23 in annual terms were noted – in the production of clothing (+27.6% YoY), leather and leather products (+20.9% YoY), in industries often associated with the production of military products: the production of finished metal products, except machinery and equipment (+23.2% YoY), manufacture of computers, electronic and optical products (+23.0% YoY), manufacture of electrical equipment (+24.8% YoY), manufacture of other vehicles and equipment (+22.3% YoY). In the automotive industry (production of motor vehicles, trailers and semi-trailers), the average salary increased by 20.4%.

Cargo turnover accelerated annual growth to 1.4% YoY compared to 0.6% YoY in August, however, seasonally adjusted, according to the Ministry of Economy, decreased by 1% M/M. The growth of road transportation accelerated to 28.9% YoY, and the decline in railway transportion (-1.1% YoY after -1.4% YoY in August). According to RBC media, loading on the Russian Railways network in October decreased by 3.4% YoY (for the first time since January), "according to the carrier, the negative dynamics last month is due to a number of factors, including the restriction of export supplies of petroleum products, which the government introduced on September 21 due to a sharp increase in wholesale prices for gasoline and diesel fuel". The reduction in the cargo turnover  for 9M23 YoY and even more so by 9M22 is due to the losses of pipeline gas exports to Europe.

Positive dynamics remains in construction (however, growth slowed to 8.4% YoY versus +8.9% YoY in August). According to the Ministry of Economy, with the exception of seasonality in September, the volume of construction work amounted to -2.2% MoM SA after an increase of +2.4% MoM SA in August. In general, for 9 months of 2023, the growth in construction amounted to +8.8% YoY. In the context of a sharp increase in the Central Bank's key rate, market mortgage rates in large banks have already exceeded 16%. While builders are being "saved" by the program of preferential mortgages at low interest rates, which is focused on the primary housing market. However, the tightening of the requirements for the initial payment and the debt burden of the borrower, as well as the planned completion of the program in July next year, increases industry risks.

In agriculture, the decline in July-August was replaced by an unexpected jump in output by 12.7% YoY, for 9M23 the growth was 1.3%.