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Thursday, October 27, 2016

The Russian economy began to show signs of recovery

The Central Bank estimated GDP growth in the third quarter as “close to zero”. According to the regulator, the process of economic recovery in August remained volatile. On the one hand, renewed growth in industrial production accelerated increase in agricultural production. On the other, weak consumer and investment demand, coupled with the pessimistic expectations of companies kept manufacturing activity. While in annual terms, according to forecasts of the Bank of Russia, the decline of the economy will be 0.3-0.7%, which may indicate a slow, but still recovery – especially if to compare the findings of the Central Bank with the refined development scenario of the Russian economy, presented last week by the Ministry of economic development. According to this document, the fall of GDP by the end of 2016 years is expected at the level of 0.5-0.7%.

photo: Natalia Muslinkina

For the conventional driver of growth by the Central Bank were taken improved the dynamics of most indicators of investment activity. In particular, according to the regulator, in the third quarter the annual rate of decline in capital investment will slow down to 2.5-3.5% (first half — year is 4.3 per cent). For example, regression is seen in reduced construction volumes, continued growth of imports of machinery and equipment. However, as explained in the Bank of Russia, the conservative investment policy of companies, the uncertainty regarding the future dynamics of demand, moderately tight lending conditions for corporate borrowers continue to limit investment activity.

To assess the state of the Russian economy “MK” asked independent experts. Their findings generally confirm the predictions of the Central Bank.

Alexander Egorov, analyst GK TeleTrade:

“Recently officials of the Central Bank, just, perhaps, more realistic in their estimates and projections. The fact that the decline in GDP is close to zero is quite natural in the conditions of a relatively low base due to the fall of the indicator in previous years and against the background of signs of recovery of the economy. In this case, the Board is justified to assess the risk factors associated with low consumer demand and investment activity given the relatively tight monetary policy.”

Georgiy Vaschenko, head of operations on the Russian stock market IR “freedom Finance”:

“The first estimate of GDP in the third quarter will be published in November. The Central Bank forecast only indicates that in his opinion, the economy slowed down due to the deceleration of inflation, growth of industrial production and agriculture. It is likely that third quarter GDP will not exceed 0.3% in annual terms. However, due to the continuing downturn in the consumer sector, as well as reduction of incomes of the population, with a high probability of negative economic growth will continue throughout 2016. Roughly, the decline will not exceed -0.5% in annual terms.”

Stanislaw Werner, Vice President of IFC Financial Center:

“The Bank of Russia in contrast to the Ministry proceeds from the more conservative assumptions of how the situation will develop in the economy and in this respect is closer to what is really going on. Therefore, in the beginning of the year as the base forecast for the next three years was considered the average price for a barrel of oil this year at $30 per barrel with subsequent increases to $35 the next and $40 in 2018, with the way out of recession only by mid-2017. But the sudden interruption of oil supplies on the world market in the end allowed us to look to the future with great optimism.

However, there prevailed a healthy skepticism: in the baseline figures, the average price of $40 per barrel, and in the comments of the head of the regulator Elvira Nabiullina has repeatedly urged not to rely on the improvement of the situation on the energy market, the business to adapt to current conditions, and the authorities – do not count on high rates of growth without structural reforms. In the end, the position of the Bank of Russia was the basis for the discussion of the parameters of the budget for 2017-2019 year. It will be calculated based on the price per barrel of oil $40.

Posted a review of the regulator has confirmed the accuracy of previously made assessments: this year GDP will shrink by 0.4-0.7% and zero growth corresponds to a trajectory. Delaying the development and implementation of structural reforms, as well as the resulting possibilities for the transfer of balancing the oil market at a later date than expected a few months ago, could eventually force the Central Bank to make estimates of economic growth even more conservative. At the moment, the Central Bank expects the economy’s transition to growth at 0.5-1.0% next year and 1.5-2.0% in the next two years”.


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