Analytical commentary

  • In May 2023, the Expanded Index of Basic Industries exceeded the level reached in March last year. Construction played an important role in this.

  • If throughout the rest of the year business activity were to be at a level comparable to May, the index growth for the full year would be more than 3.5%. Under the most optimistic assumptions, GDP growth would also be comparable.

  • Nevertheless, during H2 2023 business activity will most likely not grow at the pace of the first half of the year in annual terms, and month-on-month it may even decline. Whole-year growth is likely to be closer to 2%.

What is the Expanded Index of Basic Industries?

ACRA considers this index to be expanded because the standard sample of industries does not include, for example, paid services provided to the public, despite monthly data being readily available for them.

It is the closest proxy indicator of real GDP dynamics (Fig. 2). The index is based on data on production in industries for which monthly results are promptly published. The weight of industries in the index corresponds to the weight of industries in GDP; their total weight is about two-thirds of the total production of goods and services. The index level in this commentary is normalized to the average monthly level of 2019. Therefore, for example, 104 in any given month should be interpreted in such a way that the total output of basic industries in the month was 4% higher than the average level of 2019.

What is this indicator showing now?

This May (latest available data), the Expanded Index of Basic Industries exceeded the level of March 2022 following a deep decline last year (Fig. 1). Both the level and the growth of the index were relatively high: May was 1.5% higher than April (after seasonal adjustment), and the index value of 107.8 is close to the peak recorded in December 2021 (108.7, where 2019 = 100). If for the rest of 2023, business activity were to be at a level comparable to May, the index growth for the full year would be around 3.8%. Therefore, if the observed level and growth of the index are optimistically extrapolated to the rest of the year and the industries that are not covered, then the GDP forecast for 2023 should be higher than most of the existing public forecasts, i.e. above 3%.

Figure 1. In May 2023, the Expanded Index of Basic Industries returned to the level of March 2022 (seasonally adjusted production levels, 2019 = 100)

Sources: Rosstat, ACRA

Figure 2. The Expanded Index of Basic Industries is a good proxy indicator of GDP

Sources: Rosstat, ACRA

Which sectors drove growth in production volumes in early 2023 and 2022–2023?

Since the start of this year until May, positive or neutral dynamics were recorded by almost all the basic industries (dark green columns in Fig. 3). The largest difference can be seen in wholesale trade (+15.9%), which grew at the very start of 2023. This generally corresponds to data on exports and imports and retail trade turnover (+6.1%). The growth in construction and manufacturing is also relatively high (about +5–6%). In descending order of importance for GDP dynamics, the growth rates of business activity at the beginning of the current year rank the sectors as follows: wholesale trade, manufacturing, and construction.

Taking into account the weight of industries, construction has made the largest contribution to supporting GDP since Q4 2021, equivalent to 1.6 percentage points of GDP.

In terms of the basic industries, extraction, ‘water and waste, retail and wholesale trade turnover and cargo turnover (light green columns in Fig. 3) did not reach the monthly average level of 2021 in May 2023. This situation is almost fully related to the emergence of barriers for exports and imports and corresponding changes to logistics. The largest excess of the pre-crisis output is observed in construction (+13.4%) and paid services to the public (+5.6%), oriented towards domestic demand and stimulated by government spending, as well as in agriculture (+5.6%).

Figure 3. Difference in production volumes in May 2023 and Q4 2021 and Q4 2022 (on the basis of seasonally adjusted indexes)

Sources: Rosstat, ACRA

Given the above, as well as unemployment statistics and partial data on capacity utilization in various industries, it can be cautiously concluded that, with considerable probability, May 2023 was indeed one of the strongest months in terms of production volumes in base industries and some services (among the past months of this year). Since about 40% of GDP production is still outside the listed industries, the above conclusion for the production of all goods and services is possible only taking into account the additional assumption that the services sector in a broad sense did not show a significant reduction at the beginning of 2023.

Why is the growth potential of business activity in the second half of the year lower than in the first half?

1)      On July 3, 2023, Deputy Prime Minister Alexander Novak announced that in August Russia will reduce oil exports by 500,000 bbl per day in addition to the March decrease in oil exports. This should lead to a reduction in the mining sector as a whole. The contribution of mining to GDP, taking into account intersectoral relations, is about 20%. In optimistic scenarios, an increase in domestic oil refining and, as a result, increased exports of petroleum products can partially smooth out the effect of this decision.

2)      Excessive advancement of government expenditures, apparently, changes the standard seasonality of GDP production. In this regard, the GDP growth noted in the first half of the year and stimulated by the government should be partially offset by slower growth or decline in the second half of the year. Even taking into account the possible increase in planned government spending by about RUB 1 tln, fiscal policy in the period up to the end of the year, will not, most likely, stimulate demand further, and its impact will be almost neutral.

3)      Significant decrease in the savings rate (increase in the consumption rate), which supported retail turnover at the beginning of the year, has probably reached its natural limits. As early as in the first quarter, the share of cash income spent by the population on the purchase of goods and services approached both the indicator for Q1 2022 and the average values from 2018 to 2019 (82.5% vs. 81.4%, seasonally adjusted).

4)      The labor resources use rate is also approaching natural limits, which will restrain extensive non-capital-intensive growth. National average unemployment is 3.2%, which is low both for Russia and in comparison with other countries. A further increase in demand for labor resources may induce an increase in costs (which is already putting pressure on real wages), impact inflation, and lead to the need to raise the key rate by the Bank of Russia. This, in turn, may cool credit activity.

For details, see ACRA’s analytical commentary Consumers at a Crossroads from May 26, 2023.

Why is it important to rely on monthly and quarterly increases in the seasonally adjusted industrial production index, rather than on annual increases, when interpreting current trends?

The annual growth dynamics reflect, by half, not the current trends, but more remote trends, for example, last year’s events. This shows the base effect, which concerns almost all macroeconomic series today. This is due to the strong volatility of the comparative base from March to July 2022. For example, the apparent acceleration of wholesale trade growth from 6.5% in April 2023 (vs. April 2022) to 14.8% in May 2023 (vs. May 2022) is fully explained by the increase in the intensity of wholesale trade from January to February 2023, as well as the fact that May 2022 turned out to be significantly worse for this segment than April 2022. At the same time, in the second quarter, the sector’s turnover actually stagnated, and over the past two months, it has slightly decreased (Table 1). In contrast, for example, in the manufacturing or construction industry, the increase in annual rates really correlates with growth over the past two months.

table 1. comparison of various indicators describing current trends in production volumes


Growth of seasonally adjusted industrial production index,
May 2023 vs. March 2023 (annualized)

Growth of industrial production index,
April 2023 vs. April 2022

Growth of industrial production index,
May 2023 vs. May 2022

Growth of industrial production index, January–May 2023 vs. January–May 2022






Industrial production




















Retail trade turnover





Wholesale trade turnover





Freight turnover





Paid services to the public





Sources: Rosstat, ACRA

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Dmitry Kulikov
Director, Sovereign and Regional Ratings Group
+7 (495) 139 04 80, ext. 122
Svetlana Panicheva
Head of External Communications
+7 (495) 139 04 80, ext. 169
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