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Subdued consumer demand one of Russia’s key economic challenges -deputy PM

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MOSCOW — Fostering a recovery in consumer demand and helping the corporate sector become profitable are the biggest tasks for the Russian government to address in 2023, First Deputy Prime Minister Andrei Belousov said on Tuesday.

Russia’s economy is set to contract for the second year running in 2023, with sweeping Western sanctions against Moscow over its actions in Ukraine and a “partial mobilization” of mostly working-age men adding to longer-term issues such as falling disposable incomes.

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“The consumer market is recovering very slowly,” Belousov said in an interview on state television. He referred to the situation as something “close to stagnation.”

“This is above all because our real wage growth is recovering very slowly, and in turn is the flip side of a low unemployment rate,” Belousov said. “The price of high employment is very slow real wage growth.”

Consumer lending, a powerful tool in supporting demand, is down as well, he said.

On the corporate side, companies’ profits are down about 8-10% year on year, Belousov said, creating problems with investment.

“More than 50% of our investment funding is from a company’s own funds. If profits sag, that means investment will also sag,” he said.

The rouble’s recent plunge could help in that regard. Capital controls and a collapse in imports saw the rouble strengthen for much of this year, but now company revenues are going down, a rate of 70-80 per dollar would be more beneficial, Belousov said.

Inflation is seen at 5-6% next year, but Belousov expects it to drop lower, which could allow the Bank of Russia to ease monetary policy and foster growth.

That assessment is at odds with the view of economists polled by Reuters last week, who expected inflation nearer the upper limit of that range, which would limit room for rate cuts. (Reporting by Darya Korsunskaya and Alexander Marrow; editing by David Evans)

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