Russian government concerned tight labour market may restrain recovery

The Russian government is concerned labour shortages across the country could undermine any chance of Russia mounting a sustained economic recovery in the months ahead, Economy Minister Maxim Reshetnikov said on Tuesday. The Russian economy is set to contract by 2.9% this year, according to the ministry's official forecasts, with analysts expecting another contraction in 2023 and saying Russia's medium-term growth potential could be as low as just 1%.

The Russian government is concerned labour shortages across the country could undermine any chance of Russia mounting a sustained economic recovery in the months ahead, Economy Minister Maxim Reshetnikov said on Tuesday.

The Russian economy is set to contract by 2.9% this year, according to the ministry's official forecasts, with analysts expecting another contraction in 2023 and saying Russia's medium-term growth potential could be as low as just 1%. Western sanctions and the fallout of Moscow's invasion of Ukraine have hit the economy hard, disrupting supply chains, triggering an exodus of manpower and Western firms, and cutting Russian companies off from Western technology and capital markets.

But the economy has held up better than initial predictions for a possible double-digit fall in GDP, and unemployment is just above a record low at 3.9%. That tightness in the labour market, however, is causing concerns among decision makers in Moscow, Reshetnikov said in an interview on the state-run Rossiya-24 TV channel on Tuesday.

"We are very much concerned, of course, about the labour market. Because in fact (labour) is scarce at the moment, and this is a constraint," he said. President Vladimir Putin's order to mobilise more than 300,000 reservists - mostly working-age men - to fight in Ukraine has exacerbated existing shortages in Russia's already shrinking labour force.

Hundreds of thousands more have fled Russia in opposition to the war and to avoid being conscripted. "Increased tension in the labour market, which is largely a result of mobilisation and emigration, has led to an aggravation of personnel problems at businesses," said Evgeny Suvorov, an economist at CentroCreditBank.

Alfa-Bank economists Natalia Orlova and Irina Rostovtseva estimate about 1.5% of Russia's entire workforce has left Russia since Moscow launched what it calls a "special military operation" in Ukraine. "We believe that due to the migration outflow, domestic demand will continue to decline in 2023, and combined with a likely decline in investment, this could lead to a 6.5% drop in GDP," they wrote in a recent forecast. Russia's economy ministry is forecasting a 0.8% contraction next year.