Russia’s depleted workforce threatening economic growth, says central bank

MOSCOW, Nov 9 (Reuters) – Russia’s depleted labour force is causing acute labour shortages and threatening economic growth, Central Bank Governor Elvira Nabiullina said on Thursday, as Moscow pumps fiscal and physical resources into the military.

Russia’s military production focus as it prosecutes what it calls a “special military operation” in Ukraine is pulling funds away from other sectors of the economy, while worker shortages and record low unemployment add to inflationary pressure through higher wages that has seen interest rates surge to 15%.

“We now find ourselves in a situation where the economy has practically fully used the available resources, this applies both to workers and production capacities,” Nabiullina told lawmakers in the State Duma.

“Unemployment is 3% and in some regions it is even lower. This means there are practically no workers left in the economy, the situation with personnel is really very acute,” Nabiullina said. “For further growth of the Russian economy, increased labour productivity is needed.”

Nabiullina also pushed back against lawmakers’ requests for preferential lending for some industries, as large state companies struggle under the burden of soaring rates.

“If we loosen our grip, we won’t achieve anything,” Nabiullina said. “Inflation will still have to be reduced but from a higher level.”

Inflation pressure peaked in the third quarter of this year, Nabiullina said, but annual inflation will only start decreasing next spring. The central bank’s forecasts suggest that reaching the 4% target by end-2024 will be a tough ask.

Nabiullina said another rate hike may be required before the bank can start reducing borrowing costs again. The next rate meeting is on Dec. 15.

The rouble’s weakening this year – it tumbled past 100 to the dollar in August and September – reflected an overheating of domestic demand, stronger demand for imports and limited foreign exchange supply, Nabiullina said.

The currency also came under pressure from Russia’s budget deficit and from geopolitical turmoil stemming from a short-lived mutiny by mercenary leader Yevgeny Prigozhin in June. Prigozhin was killed in a plane crash in August.

Recovering exports and a presidential decree ordering the mandatory conversion of most FX revenues for some exporters has smoothed out volatility, said Nabiullina. The decree and higher rates have also sparked a rouble recovery to 92 to the dollar.

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Chief companies correspondent for Russia, Alexander covers Russia’s economy, markets and the country’s financial, retail and technology sectors, with a particular focus on the Western corporate exodus from Russia and the domestic players eyeing opportunities as the dust settles. Before joining Reuters, Alexander worked on Sky Sports News’ coverage of the 2016 Olympics in Brazil and the 2018 World Cup in Russia.

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