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Monday, October 24, 2016

In search of bottom: the analyst drew a real picture of the Russian economy

The Russian economy is experiencing not the best times. And it for anybody not a secret. Last year was remembered falling day by day oil, speeding is not a joke, inflation, weak ruble and the fall in real disposable income. Not happy main macroeconomic indicators and the last six months. Worries, anxiety, hopes, mixed people in the last six months. However, the Ministry of economic development looking to the future optimistically. According to the head of the Ministry Alexei speaker, the Russian economy will begin to recover this year, and in 2017 we expect growth of 0.4%. Whether you believe the forecasts of officials or it’s time to tighten their belts, found “MK”.

photo: Gennady Cherkasov

When is reached the “bottom” of the crisis, when the domestic GDP will start to recover? This issue is now of concern to every Russian. And for good reason. Due to the fall in oil prices, the weakening of the ruble, and sanctions from Western countries, the Russian economy was in recession. It is felt the majority of the population. According to social polls, in 2016, 84% of citizens are affected personally. In 2015 the economy is not only growing, but reduced the amount created by gross domestic product by 3.7% compared to 2014.

And in the beginning of the year from the Ministry of economic development appeared promising information: the peak of the crisis passed in 2015. But whether the recovery will start in 2016? Unfortunately, no. In April, production in major industries continued to decrease. While the economy, as in the famous expression — hit rock bottom and started to dig.

But the positive is this. There is a clear decrease in the rate of this decline. That is the “second bottom” is near. According to the latest data of Rosstat, GDP in may decreased by 1.2% compared to may 2015. Experts suggest that GDP in 2016 will be from 1 to 1.2%.

But in the next, 2017, from such the lowest level we’ll go again and begin to grow. 1.7% a year, predicts the world Bank. Nice to know that this respected institution assumes approximately the same rate of growth for the United States and the Eurozone. However, the Ministry of economic development careful and expects only 0.4% growth in 2017.

Oil is not a barrel of honey

What was in the first half of the year and what will happen next in Russia, largely depends on oil prices. Energy — the main source of income, oil — everything. Prices in the world, as we know, are considered a barrel. It is the fall in the value of this barrel of Brent crude was $112 in 2014 to a low of $29 in January 2016, largely led the country to serious condition.

The past experience of the recent crises in Russia shows that the recovery is almost solely due to the saving of the wonderful increase in the price of oil. Unfortunately, other strong reasons for the growth we have yet.

But “miracle” occurs, it seems, this time. Over the past six months the price of a barrel rose to 80%. Obviously, the cataclysm her a sharp drop back to $30 will not occur due to the fact that this price is a speculative, low for production. First, she was strengthened in anticipation of the meeting of the countries-exporters in April in Doha to freeze output. I went on the breath of the Doha meeting. When it failed to agree, interfered with supply disruptions in Canada due to forest fires in Nigeria from the actions of militants. Decreased and the production of shale oil in the United States. Therefore, in June we saw Brent at the peak of more than $52 per barrel.

And here is the place to add in this barrel of honey the spoon of tar. Because higher price is unlikely. All of these reasons for its growth are exhausted. The fires had stopped, with fighters agree. And most importantly — at prices above 50 again becomes profitable to extract shale oil in the United States. Increasing production of Saudi Arabia and Iran. Therefore, the total excess of supply over demand in the world remains at the level of more than 1 million barrels per day. This situation has led in June to the withdrawal value of “black gold” from the highs. And probably means a further continuation of the decline. The movement may go up to $40-45 per barrel. And then, next year, will turn again at an increase to $50-55 due to the increase in demand with the gradual strengthening of the global economy.

And the dollar — paradoxes the friend

Where the oil is there and the dollar against the ruble. It has become habitual. But here’s the paradox. In the past six months a powerful movement in the value of “black gold” does not lead to strong changes of the exchange rate to the ruble. In 2015 oil has fallen by 57% and the ruble against the dollar by 37%. And in 2016, while Brent rose 80% and the ruble — by 32%. No, the impact of oil on the ruble remained. But has become less significant.

This is due to many reasons. Reduced need for currency in the country. For example, according to the CBR, the external debt during the 2014-2016 period decreased by almost $ 200 billion. Thanks to the sanctions: the former foreign currency loans extinguished and the new is not given in this volume. Compare, for example: in the II quarter of 2016 external payments of banks amounted to $7.2 billion, and in the 3rd quarter by 16% less, namely $6.1 billion.

In addition, the Central Bank began to apply methods of smoothing the impact of oil on the course. If the banks need the currency, the Central Bank may not sell it, and lend in order not to increase the demand. In 2016, began to act and more stringent exchange rules for individuals.

Therefore, we can assume that even with the decrease in the price of oil rising dollar against the ruble will be limited. It is possible to see the course of 70-75 rubles/dollar. during the second half of the year. But panic 86, in January, will not. As the subsequent stabilization of oil and the dollar will be approximately at levels 63-67 RUB/USD.

But that can hardly wait for its attenuation is below 60 rubles/$. After all, too strong rouble is unprofitable to the state, because from exports in this case comes less rouble income. If the market the currency will drop significantly, the Central Bank can buy dollars, euros, to increase their rate. And foreign exchange reserves will increase, and will help to fill the budget higher revenues from the sale of goods abroad.

Approaching Brakit”, or the refrain of doom

At the end of the semester the event occurred, which consequences may become a key not only to the end of the year, but in the future. In the UK, the decision on the country’s withdrawal from the European Union. This is “Brakit”. And a referendum on it held on the 23rd of June, all half acted as the strongest economic factor for the world. A real refrain of doom!

What’s next, and how it will affect the Russians? The value of it is that after decades of striving for unity in Europe launched a powerful impetus to reverse the process. It can continue and go to other countries, gradually even lead to the collapse of the European Union. Lost gained economic relations, can re-emerge the customs and tariff restrictions on the movement of goods, capital, people. All this affects British, European, world economy, makes goods more expensive, reduces its production. Now plummeted courses of pound sterling, and shares in the world.

For Russia, catastrophic threats “Brakit” shall not be. But there is a danger that the shock will reduce the demand for resources in the world. And will hit the Russian oil and gas exports, will be further pressure on their prices (by the way, above our forecast takes this into account).

On the other hand, the separation of the powerful economy of the EU and its weakening has on the positions and the politicians who stand for sanctions against Russia. The most zealous of their supporters — namely the UK. Europe itself a lot to lose because of the mutual sanctions. Thus began the movement against them may intensify in the new situation and lead to their cancellation, at least partially. That would be a huge positive for our country.

What will happen to prices and to us?

The past six months and is very important from the point of view of inflation. After all, last year sharply tossed the tags. According to Rosstat, consumer inflation in Russia in 2015 was 12.9%. It was connected mainly with increase of the exchange rate, making imported goods more expensive, equipment, materials. But on the way of inflation, the mountain is our Central Bank. We have said that it, along with the Ministry of Finance succeeded in 2016 to reduce the dependence of the ruble from oil, to limit the amount of money in the economy. This was to reduce the rate of growth of prices. And then there’s the rate of our currency began to strengthen. According to Rosstat, may inflation in annual terms amounted to 7.3%. Of course, this is still a lot, but still progress is being made. Indeed, trips to the shops leave the impression that though prices are rising, but more slowly than last year.

Factors to the overall stabilization, the above also work in this field. Their manifestation was that our Central Bank 10 June for the first time in 10 months reduced its key interest rate from 11% to 10.5%. It became possible due to the weakening of inflation. The most important stroke in the pattern half!

Central Bank is determined to achieve its goal of inflation of not more than 4% in 2017. It is quite possible, given the pace of change. Well before the end of 2016 there is a very big chance to see her at 6%.

The country is extremely important. After all, small pace of increase in prices not only improves human well-being. It allows to increase the effective demand for goods and services, which provides an incentive to economic growth.

Real incomes and unrealistic costs

For people is important, not only prices, but the correlation with income. Real money incomes (money received after all taxes, mandatory payments and adjusted for rising prices) in January–may 2016 decreased by 4.9% compared to the same period in 2015, according to Rosstat. Here the situation is alarming. Because the drop rate is not reduced, and in may 2016, the reduction was 5.7% in may 2015, that is stronger than the average for the 5 months. And in the last half of total expenditure spending on food exceeded 50% for the first time since 2008, have become more than spending on non-food goods. This is a very negative indicator is that the population is forced to spend money mostly on food. Such a high share of expenditure is a manifestation of a difficult financial situation.

And oddly enough, sounded in may, the proposals of the Ministry of economic development about how to get out of the crisis by limiting the growth of wages and other incomes of people in the coming years. Supposedly this will lead to an increase in investment from the profits of enterprises. Perhaps the profit will be higher from savings on salaries. But investment will not receive the final solvent mass consumer products and will become largely meaningless. Because people mostly spend on food and necessities, often can’t afford additional purchase. And that final demand would increase sales.

Real incomes until the end of 2016, unfortunately, will not be able to grow. That is, inflation will outpace the growth of wages and pensions. Nominal income, according to Rosstat, in January-may become more 2.3% compared to the same period in 2015, and prices, recall — 7.3%. With the weakening of inflation to 6% in 2016 real income could fall by about 4%.

Songs about retirement

On the pension sector in the last 6 months has been a lot of heated conversations. The contours of the pension reform is not yet final, but is considered next. Funded part of pensions in the future will be transferred from the Pension Fund (PF) in the property and the disposal of a person with self-investing in private pension funds.

In addition, probably will gradually increase the retirement age. For civil servants, everything is already decided since 2017 And it could become a “rehearsal” for such an unpopular action for all citizens, obviously, after 2018.

In early 2016, increasing pensions of 4% was three times lower than inflation in 2015, although the law provides for full indexation of price growth. PF is simply not enough money for this (its deficit in 2016, according to forecasts, will amount to 1.6 trillion rubles). And here is also affected by the reduction of the amounts of real wages, which are deductions of PF. However, it is likely that forced the postponed indexation will be implemented after the election of the new Duma, in November–December 2016.

What is the result?

So the first half can be called a cautious hope after 2014-2015. The economy shows a slight decrease in negativity in the main areas. To the end of the year, this inertia will persist. And already positive we’ll be waiting for 2017.

Mark GOYKHMAN, analyst GK TeleTrade, specially for “MK”

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