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Saturday, October 22, 2016

The Russian economy makes a second attempt to get out of the crisis

A series of very encouraging signs record experts, analyzing the state of the domestic economy. Seem to have stopped their decline and are moving to growth and a number of industries, and the banking sector, and transport. While economists pay attention to the group of risks that threaten economic recovery.

The Russian economy begins to emerge from the longest recession over the last 20 years, says the American Agency Bloomberg. With exactly the same expectations a little earlier by experts of the Russian Central Bank and Ministry of economy of the Russian Federation.

“The past six months, give such a feeling that next year should be more positive. We have already groped the bottom and needs to move up”

In Russia intensified business, growing electricity demand and increase the volumes of rail and container traffic. All this suggests that the pulse of the Russian economy begins to beat faster, says Bloomberg.

So, for the first seven months of the transportation of RZD grew by 1.8% compared to the previous year, while the volume of transportation of building materials jumped as much as 19%. Good profit began to receive electricity.

“Given the cost of connecting to the network requires a long-term optimistic, and a surge of such applications in 2016 suggests that members of the Russian economy are much more optimistic than a year ago,” write the review analysts of Renaissance Capital Vladimir Sklyar and Anastasia Tikhonova.

Another compelling factor is the smallest since the beginning of 2015, the decline in GDP, which is celebrated in the second quarter of 2016. The fall of the Russian economy slowed to 0.6%, follows from the latest data of Rosstat, in the second quarter. Agency experts were expecting even a slightly worse figure of minus 0.8 per cent. In the first quarter, the Russian economy contracted in annual terms by 1.2%, thus, the rate of GDP decline slowed down twice.

The prerequisite for the Russian economy from the crisis is also reducing the volatility of the ruble to a minimum in 2014. In the last quarter, the ruble showed the second result among currencies of developing economies, gaining 4.8 per cent against the US dollar. Finally, five sessions in a row reduced the yield on ten-year bonds of the Russian Federation, which means the expectation of investors, reduce risks to the Russian economy.

A noticeable improvement in sentiment is noted in the industry. Witness the latest HSE report published in early August. “On the basis of generalized views of participants in the latest polls, the current and expected economic situation in the industry can be described as stagnant, at the same time stable and with signs of transition in the area of production expansion,” – said the Director of the Center for market studies, Institute for statistical studies and Economics of knowledge, HSE George Ostapkovich.

“The business sector of the economy is indeed recovering from stagnation, and it is felt not only on macroeconomic indicators, but also a notable revival of interest in new projects, – says the newspaper VIEW CEO of Russian-European investment consortium” Paul Gennel. – I feel that happened psychological change – many stopped to wait for the return to the “old days” and accepted the need to work in new conditions, no matter how difficult and unpleasant it might have been.”

Ostapkovich does not exclude that the industry is already at the end of the year will be able to overcome zero and get in the growth zone. The grounds for this are the improvement in industry and the low base last year. The only thing that begs the question, is an unbalanced budget, because industry has a big share of state property.

“The fiscal deficit limit the investment activity of state-owned industrial enterprises, and resequestered expenses of the defense sector will not be able, because of their volume, to ensure the industry as a whole the transition in the area of sustainable growth,” – said the expert of the higher school of Economics. Business investment activity is still limited to high key rate on loans.

Ostapkovich, the deterioration of sentiment in the oil industry, however, sees a reason for concern: impact production growth in the first three months of the year gave way to a slowdown. Harder to account for chemical and food industry, which in the last two months complaining about lack of demand. But cheered from outsiders – venture for the production of machinery and equipment. “It’s cautious to assume that the first signs of import substitution in this subsector,” says Ostapkovich.

According to Rosstat, in the first half of the industry as a whole grew by 0.4%, and in June, industrial production accelerated to 1.7% year-on-year. In may, the growth was only 0.7%. The driver supports the manufacturing sector, which grew by 1.6% in June – the highest since December 2014. High growth rates continue to demonstrate the transport and agricultural sectors. And from 1% (unexpectedly) in June increased the market for services against a modest 0.2 percent a month earlier. Only consumer demand and the construction sector is still down.

“The past six months, give such a feeling that next year should be more positive. We have already groped the bottom and have to move up,” – said the head of Ministry of industry and trade Denis Manturov. In 2017 the industry will grow by 1.1% in the baseline scenario of Department (manufacturing industry – by 1.7%). And help to that reserved by the government for the next year of funding to support industry in the amount of not less than this year, explained Manturov.

In the banking sector, the situation is also improving. According to the Bank of Russia for July, the credit institution earned net profit of 99 billion rubles, and with the beginning of the year, almost 460 billion rubles. The share of overdue loans is not growing and remains stable at 6.8% in the corporate sector and 8.6% in retail. Moreover, there is a slight growth of rouble loans and rouble deposits (less than 1%). “Statistics of the banking sector looks promising with an eye on the continuing imbalance between the dynamics of loans and deposits. The situation in the Russian economy, seem to have finally stabilized,” say analysts at ROSBANK.

The second half should be even better than the first. In the third quarter, Russia’s GDP will grow 0.4% compared to the previous year, unless, of course, is unpredictable shocks, according to experts of the Department of studies and forecasting of the Central Bank. As a result, for the year Russia’s GDP will fall by only 0.3–0.7 percent, believe there. The Ministry is even more optimistic – in the baseline scenario the economy will shrink for the year only 0.2%.

Alexey Devyatov from URALSIB expects decline in real GDP for the year 0.3%, also predicting continued moderate recovery in the second half. However, the trend towards improvement is still quite fragile, he warns, because there are risks of lower oil prices, low growth in the United States, and the impact of Breccia and risks of economic crisis in China.

It is worth remembering that last year there was a similar trend: the first half of the year gave grounds for Russia’s withdrawal from the recession, but a new collapse of oil prices in the autumn has confused all the cards.

However, Paul Hennell believes that the most serious risk today is not oil and not the external situation, but the exaggerated budget sector of the economy. “Unlike business, the public sector out of the crisis and continues to live in the old way, eating the money, which was much less. According to many forecasts, by mid-2017, the reserves will end and will have to make a decision, thereby to further eliminate the budget deficit. If the government will go towards reducing costs and the growth of borrowing, the expense of sustaining the economic growth of the economy slowly recover. If a decision is made to increase taxes, all of today’s growth will be destroyed and we are waiting for the crisis much more severe than it is now,” warns the source.

Finally, an important event of the next semester, which will set the trends for 2017, will be the “last and decisive battle” between supporters and opponents of privatization.

“The opponents are so desperately defending their positions, even trying to argue the President in the sale of Bashneft and Rosneft. If these actions will end for them to draw conclusions, we can expect and extensive privatization of state-owned companies, and the General policy of liberalizing the economy. If the supporters of state capitalism will win again, we will have a few years of stagnation, and then, after the final exhaustion of the reserves, most likely, a new crisis”, – considers the General Director of “Russian-European investment consortium”.

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