The meeting was attended by Prime Minister Mikhail Mishustin, Chief of Staff of the Presidential Executive Office Anton Vaino, First Deputy Prime Minister Andrei Belousov, First Deputy Chief of Staff of the Presidential Executive Office Sergei Kiriyenko, deputy prime ministers Viktoria Abramchenko, Tatyana Golikova, Alexander Novak, Alexei Overchuk, Marat Khusnullin, and Dmitry Chernyshenko, Deputy Prime Minister – Chief of the Government Staff Dmitry Grigorenko, Deputy Prime Minister – Minister of Industry and Trade Denis Manturov, Deputy Prime Minister – Presidential Plenipotentiary Envoy to the Far Eastern Federal District Yury Trutnev, Presidential Aide Maxim Oreshkin, Minister of Economic Development Maxim Reshetnikov, and Minister of Finance Anton Siluanov. Also invited to the meeting were Minister of Healthcare Mikhail Murashko, Minister of Transport Vitaly Savelyev, Minister for the Development of the Russian Far East and Arctic Alexei Chekunkov, and Head of the Federal Agency for Fishery Ilya Shestakov.
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President of Russia Vladimir Putin: Colleagues, good afternoon.
The Prime Minister and I discussed the economic situation generally here in the Kremlin late last night and discussed the results of our work in 2023. Mr Mishustin believes that the national GDP growth indicator we are talking about – 3.5 percent – may in fact be slightly higher than that, if calculated more thoroughly.
I will now ask Mr Reshetnikov to tell us about this. But I would like to note that this growth is primarily based on domestic consumer and investment demand. This is very important.
Good indices were recorded in industrial production, construction, agriculture, and tourism. Freight shipping has grown a little. As for the construction industry – we have talked about this several times – I think new housing units totalled 110.1 million square metres, which is absolutely unprecedented in Russia’s history. I want to congratulate the builders on this. This is a very good indicator.
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True, there are challenges as well, with inflation at 7.4 percent. It is my great hope that collectively, with the Bank of Russia, of course, we will manage to find a solution to this problem.
Real personal income growth was 7.7 percent over the 10 months of last year. That’s not bad, but we need to compare one thing with the other, keeping in mind inflation processes.
Please, Mr Reshetnikov. I would like to ask you to provide a deeper analysis and comment on what I said.
Minister of Economic Development Maxim Reshetnikov: Mr President, colleagues,
The Russian economy has not only adapted to the newly available foreign economic environment but is successfully expanding.
Back in 2021, the World Bank ranked Russia the fifth strongest economy globally and Europe’s largest economy in terms of purchasing power parity. As of the end of 2022, we have retained these positions despite the fact that the World Bank based its numbers on early estimates of our economic growth for 2021 and 2022. Usually, these estimates get adjusted and revised later.
In general, revising statistics as new data becomes available is standard international practice, and Rosstat complies with this. So, in February we come up with the first economic growth estimate based on the most recent data covering the basic economic sectors, including the manufacturing industry, construction, agriculture, transport, and trade, and then this estimate is adjusted as new information becomes available, primarily in the service sector such as food and drink venues, tourism, professional services, and the public sector. This is something that requires more in-depth analysis such as data from the balance of payments, banking statistics, individual income and spending, and so on. In all, there are five estimates for each year of economic growth, and they are adjusted within the next two years.
So, before the New Year, Rosstat released the final, fifth growth estimate for 2021 and, as you may be aware, it was revised upwards: the previous one showed 5.6 percent growth, later revised to 5.9 percent. To reiterate, we are still talking 2021. The 2022 estimate, the third one, has also been revised upwards. We used to think that the economic slump stood at 2.1 percent, but Rosstat now says it was actually 1.2 percent. So, what we have in fact over the past two years is 1.2 percent economic growth. This objectively reflects the outperforming growth of the services sector which we infer from indirect data.
As I said, we expect the first estimate of the economic growth in 2023 in mid-February to be at the level of 3.5 percent year-on-year, as we estimated at the end of the year. Our estimate was a bit lower, a bit more conservative but now we estimate it at 3.5 percent. If the scale of subsequent adjustments is comparable to previous years and it is bound to be no less, the final estimate of economic growth in 2023 may be around four percent. This is exactly what you discussed with Mr Mishustin. Indeed, our experts confirm that this result is most likely, but Rosstat will announce the final figure at the end of this year.
It is very important to understand what caused this growth and how these macroeconomic indicators match what we observe in daily life. As you noted, this growth is primarily the result of high domestic demand, both consumer and investment demand. Aggregate sales in retail, catering and paid services increased by 5.7 percent in real terms in the first 11 months of this year. I will emphasise that this is an inflation-adjusted figure. So, the increase is real.
Vladimir Putin: Last year?
Maxim Reshetnikov: Sorry, in the first 11 months of last year.
Its main driver is the growth of real incomes. In the first three quarters of 2023, they went up by 4.4 percent. That said, salaries grew by 7.7 percent in real terms over the period of ten months, as you noted. The nominal figure is over 13 percent. Importantly, all this was achieved against the backdrop of historically low unemployment rate at 2.9 percent.
A tangible contribution to the growth of incomes was also made by comprehensive social support measures that are funded from the growth of budget revenue, budget spending and revenues from business activity.
The continued investment growth was very important. In the first three quarters of 2023, it amounted to 10 percent in real terms, taking place against the backdrop of the higher 2022 base. The figures for that year also underwent revision, and in 2022 investment grew by 6.7 percent.
Importantly, the share of projects for modernisation and expansion of production and the purchase of new equipment in the overall structure of investment has grown – meaning investment in projects like this grew at a rate faster than average.
Consumer and investment demand is being met by growing domestic production. Overall, industry in Russia grew by 3.6 percent over 11 months, and manufacturing industries grew significantly higher – up 7.5 percent.
We see an increase in the output of goods with high added value, including in various segments of mechanical engineering. This includes electronics and electrical equipment, and railway locomotives and railcars. Automotive production is gradually recovering. Chemicals and metallurgy made a significant contribution. Food processing growth remains steady as well. In addition to industrial production, construction, as you noted, tourism, and cargo transportation grew rapidly.
Thanks to the redirection of export flows to new markets, we have maintained high export volumes. In the second half of 2023, the share of friendly countries in Russia’s exports exceeded 80 percent.
As you noted, inflation has become a serious challenge against the backdrop of growing domestic demand and the restructuring of the economy. It peaked in late summer and early autumn amid the weakening of the ruble, among other things. However, thanks to the measures taken by the Government and the Bank of Russia, the exchange rate has stabilised, and by the end of the year, inflation abated to 7.4 percent, which is even slightly below our September forecast. In the future, the accelerated growth of prices for certain goods will be restrained by supply growth and maximum support for the supply economy, the goal you set at the St Petersburg International Economic Forum.
It goes without saying that our priorities in 2024 are to maintain steady growth in people’s incomes, continue the restructuring of the economy and expand the supply of domestic goods and services.
This concludes my report. Thank you.
Vladimir Putin: Can you explain to the general public – not your colleagues in this meeting – what you meant by “first in Europe and fifth in the world in terms of purchasing power parity”? What does this mean? So that people understand the idea.
Maxim Reshetnikov: There are international institutions out there which compare economies and nominal economic volumes. Each country has its own statistical authorities that run its GDP numbers. The question is how to bring GDPs from different economies to a common denominator. To do so, the purchasing power parity numbers are derived in a specific way. In other words, they run a comparison of price levels in each particular economy to arrive, for the sake of an example, at an accounting ruble exchange rate to the US dollar, which is used to recalculate our nominal GDP, which Rosstat calculates in rubles.
It differs significantly from the nominal level, which is lower, because it compares energy prices, food prices, prices for services such as housing prices, because in some countries people tend to rent, while in others they prefer to own, and so on. So, this is a fairly complex international science, and this work is done by international institutions such as the World Bank and the IMF. They follow different methodologies, but their methods really make it possible to bring economies to a common denominator.
So, based on this indicator, the Russian economy outdid the German economy in 2021. We officially documented this state of affairs as of late 2022. In principle, broadly speaking, we are right behind the Japanese economy, the gap between us is not that large. Provided the growth rate differential remains unchanged (the Japanese economy is growing at less than one percent, while we expect our growth to exceed two percent), in principle, we can safely assume that we are quite capable of overtaking the Japanese economy (in terms of comparable size) in the medium term, that is, within three to four years.
Notably, the strongly growing economies of our main trading partners from Southeast Asia are slightly below us in the rankings, and they are our competition. Sure enough, competing in the rankings is probably not an end in itself, but nevertheless it is an important benchmark for us, and our international partners are mindful of the rankings as well.
Vladimir Putin: Are these data substantiated, objective, and provided by international organisations?
Maxim Reshetnikov: Correct, Mr President, these data are provided by entities that can hardly be suspected of leniency towards us. It is mostly us who have questions whether our colleagues have taken everything into account and whether they are taking into account the latest assessments or the initial assessments, and so on. We have questions, and we think we are undervalued, but the whole world is using this data, so yes, these are absolutely objective assessments.
Vladimir Putin: Good, thank you. We are well aware (Mr Mishustin and I discussed these matters yesterday) of the kind of challenges we are facing and what we need to focus on. We will not go into detail now; instead, we will do it at separate dedicated meetings. Thank you very much.
Now about my trip to the Far East. You know that people asked me many questions and I discussed some of the problems with you. Now, today, we have exchanged views with many colleagues on how to meet people’s needs. However, there is no doubt that we must draft these decisions and then adopt them based on expediency and common sense. They must be economically and socially justified and socially fair.
Let’s talk about this.
(Further, the participants discussed specific problems that were raised at Vladimir Putin’s meetings with residents of Far Eastern regions. They reviewed support measures for large families, cross-border trade, subsidies for the purchase of cars for big families in the Far East, registration of aerodrome and airport equipment, the functioning of airports in Yakutsk and on Kunashir Island, transportation of passengers to Anadyr via the bay by small hovercraft, construction of bridges in Yakutsk and Anadyr, tourism in the Extreme North, supplies of fish products from the Far East and the North to other regions of the country, and healthcare. Heads of relevant ministries took part in the discussion.)
Vladimir Putin: I would like to ask my colleagues to analyse everything we discussed today and implement it as soon as possible.
I would like to finish with what I started. Obviously, we all live in the circumstances that have taken shape in the current moment. We cannot forget about our domestic political plans. This is clear. But let’s still use this period to get public feedback, which becomes more understandable, vivid and systemic in such periods, and to use it not even for resolving problems on the domestic political agenda but for finding substantive solutions to the problems that worry people, proceeding, as I said, from expediency and common sense, economic and social viability. It is a very good excuse to better understand and respond to the needs of society.
We discussed some of these issues and will discuss them in the near future. All the more important as it will help us formulate the main national strategic development goals, which the Executive Office and the Government are doing now to some extent. It is necessary to define these goals clearly and understandably for specialists, the expert community, for citizens in the broadest sense of the word, because this concerns and affects practically every Russian citizen.
We will work regularly on such agendas in the near future.
Thank you very much. I wish you all the best.