The authorities recognized the problem of stagnant demand and low inflation in Russia

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The authorities consider stagnation in demand and low inflation to be the main problems in the economy at the end of last year and the beginning of this year. The topic was discussed at a meeting with the president last week - and most of its participants agreed that there is such a problem. But they differed on how to solve it.

What was discussed at the meeting

The fact that the stagnation of demand has become one of the key economic problems in recent months, at a meeting with Vladimir Putin last week, said Economic Development Minister Maxim Reshetnikov, learned Vedomosti . According to him, the main indicator of the problem was low inflation, which has been significantly below 3% since September last year. In addition, live data from cash registers indicate a decline in demand in real terms year on year. The key task for this year Reshetnikov called the restoration of demand and the return of inflation to target indicators (this is 5.5% in the forecast of the Ministry of Economic Development and 5-7% in the forecast of the Central Bank).

First Deputy Prime Minister Andrey Belousov, presidential aide Maxim Oreshkin and Central Bank head Elvira Nabiullina, who also took part in the meeting, agreed with the position of the Ministry of Economic Development. Dmitry Peskov confirmed to the publication that stagnation in demand and low price growth were discussed at a meeting on January 17, and said that the Kremlin also sees this as a problem.

Some of the meeting participants, such as Finance Minister Anton Siluanov, saw the root of the problem in the low risk appetite of banks, Vedomosti sources say. At the meeting, it was discussed that deposits and balances in bank accounts are growing faster than lending, and banks, after an almost record loss in the first half of 2022, were able to reduce it to several hundred billion in the second half of the year.

Nabiullina was skeptical about claims that "the banks are doing well," sources say. In her opinion, before accelerating the financing of the economy, it is necessary to evaluate the effectiveness of investments. She believes that now there is a rather large bias towards infrastructure investments, while the priority in the current situation should be technological projects, primarily replacing the products and services of Western companies that have left Russia.

What do they say about it

Most banks refused to answer Vedomosti's questions. Sovcombank confirmed that the growth rate of balances on accounts of corporate clients really exceeds the growth rate of lending. They note that usually a higher level of certainty in the economy contributes to the growth in demand for loans - both from citizens and from businesses.

Consumer demand is stagnating, but the activity of enterprises cannot be called suppressed, Alexander Isakov, chief economist for Russia at Bloomberg Economics, said. In his opinion, neither in the consumer nor in the corporate segment, the problem lies in the area of ​​access to credit.

Viktor Tunev, the author of the Truevalue Telegram channel, connects the problem of demand with structural problems. Some people with high incomes and savings are either leaving the country or have taken a wait-and-see attitude due to uncertainty, he explains. According to the analyst, demand can be restored either by reducing uncertainty or by stimulating lending activity in other, less wealthy categories of consumers and borrowers.

Any significant deviation of inflation from the target leads to negative consequences in the economy, a source close to the presidential administration told Vedomosti. And worse, according to him, if the indicator is below the target. Too slow price growth leads to a fall in output, unemployment, and lower incomes of the population. In other words, this means that GDP could have grown at a higher rate, but there was not enough demand in the economy. In addition, according to the Central Bank's inflation forecast, tariffs have already been indexed - if indexation and inflation are not balanced, companies will lose profits.

Isakov of Bloomberg Economics does not see the situation as too dramatic. In his opinion, the Central Bank's extraordinary measures are not yet required and may even do harm, as long as it is enough to continue reducing the key rate after a pause in the fourth quarter to 6-6.5% this year.