Soaring current account surplus fails to cover up cracks in Russian economy

Russia’s current account surplus more than doubled year-on-year to $225.7 billion in January-November from $108.6 billion, the central bank said on Friday, giving much-needed fiscal wriggle room as the country’s economy heads into 2023 on shaky ground.

This year, Russia is on track to post a record high current account surplus after its imports of goods and services fell due to Western sanctions while globally high commodity prices boosted its export revenues.

Exports rather than import compression are responsible for the majority of the rise, the Institute of International Finance has said.

Following a sharp reduction, imports are gradually recovering, the central bank said. As an oil price cap and export embargo kick in, the surplus will likely decline in 2023.

That drop could put further strain on Russia’s economy, already saddled with subdued consumer demand, falling disposable incomes and the impact of President Vladimir Putin’s partial mobilisation order on workforce numbers.

The government this week voiced concerns that labour shortages across the country could undermine any chance of Russia mounting a sustained economic recovery in the months ahead.

“The factor that will significantly and radically worsen the situation next year is mobilisation,” Evgeniy Nadorshin, chief economist at PF Capital, said at a debt market conference.

Russia’s economy is doomed to see a fall in productivity, with consumption and investments also expected to drop, Nadorshin said, predicting a 5-10% economic contraction in 2023.

“We are dealing at best with the second toughest crisis in the 21st century,” he added. “Domestic consumption and GDP are being set back by 10 years or more and I don’t see any prospects for growth after the recession ends.”

Officials and analysts have been gradually improving GDP forecasts for 2022, suggesting that restrictions imposed against Moscow over its actions in Ukraine will lead to a less sudden, but more prolonged contraction than first expected.

Alfa Bank economists this month estimated the GDP decline at 6.5% next year, anticipating falls in demand and investment. The economy ministry forecasts a 0.8% contraction.