BSR Policy Briefing 4/2024

St. Petersburg is the second largest city in Russia and forms a second largest urban agglomeration in the country. Its regional economy has certain peculiarities, but follows general trends of Russia’s economy as its constituent part. The long-term stagnation in Russian economy started in 2013 and is based on an exhaustion and ineffectiveness of the existing economic model, which has substantial weakness on the demand side. Real incomes in Russia today are lower than in 2013, and the economic stimulus of sanctions enhanced economic growth in some sectors of economy, but failed to change the basic trend. St. Petersburg’s economy continued to grow due to its industrial sector, and this trend still persists in Russia as a whole. The reason for this growth is partly linked to unprecedented budgetary stimulus, and partly linked to repatriation of capital from abroad caused by the sanctions. However, weakness of internal demand creates problems in demand-driven sectors of regional economy, namely in real estate sector, residential construction and retail and wholesale trade. These sectors form the major part of St. Petersburg’s economy, while industrial production boosted by budgetary stimulus and import substitution is a minor part of the economy. Inside the industrial sector the best performance is shown by enterprises linked to military-industrial complex, which dominated the regional economy prior to economic reforms of the 1990s, and by export-oriented state holdings. On the other hand, automobile production and other related mid-tech enterprises focused on private demand stopped their operations already in 2022: the output in this subsector decreased dramatically in 2022-2023. In general, the main stagnation trend still persists in regional economy, and relatively successful results of 2023 will not change it. Moreover, significant economic crisis caused by technological backwardness, outdated infrastructure and weak internal demand is inevitable in long-term.