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Monday, October 24, 2016

“Lady autumn” of the Russian economy

The Central Bank has published the monthly review of the Russian economy in August. There is a backstory. June let the experts of the Bank of Russia to exclaim: “Recession over!” But, alas, they are hasty. July showed that the manufacturing industry, which had hoped in June to his role as the driver can’t handle. August returned the optimism, although very, very careful to what lies ahead — “Indian summer”, which will warm the economy.

photo: pixabay.com

Investments may Wake up, but reluctantly

“In August of 2016 the growth of industrial output resumed, which was partly due to calendar factors. In terms of structural constraints and the lack of meaningful support from the demand side the process of recovery in industrial activity remains fragile,” write the economists of the Central Bank. The overall dynamics of industrial production is eloquent enough: compared to the corresponding period last year in the first half of 2016, an increase of 0.4%, in July was a decline of 0.3% in August — an increase of 0.7%.

It is clear that changes can be discerned almost under a microscope. The reality: the Russian economy in General fluctuates a little below zero, and optimists hope that in the near time will be able to fluctuate just above that same ill-fated mark.

In General, as in the once acclaimed play “Okolonolya”. You can turn to the classics. The minor Fonvizin have steadily multiplied: “Nullity zero — zero!”, but until more there’s nothing.

No, there is. In construction the rate of decline in the first half of 2016 was 5.7% in July to 3.5% in August to 2%, in retail trade the same negative pace for the first half — 5.9 per cent in July to 5.2% in August to 5.1 percent. There the fall continued, but his pace slows. While more like a bearded joke: “the Patient before death sweated?”

But the Central Bank found significant grounds for hope for future growth. “In August 2016 continued improvement in the dynamics of most indicators of investment activity”. To consider this improvement, however, is not easy. That significantly slowed the reduction in the volume of construction works increased imports of machinery and equipment”.

All true, but the fly in the ointment is that only the import of machinery and equipment in July crossed the zero line, that is, it imported more than the year before, and in August there has been a decline, although it remains (yet?) in the positive zone.

Nevertheless, “according to Bank of Russia estimates, the annual rate of decline in fixed capital investment in August was close to zero”. It sounds almost happy, but we are talking about the fact that the August investment can be proved at the level of August last year, when they are not shone that eventually led to the fall in GDP in 2015 is 3.7%.

The following curious passage: “a 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. According to Bank of Russia estimates, in the first quarter the annual rate of decline in capital investment will slow down to 2.5–3.5% (first half of 4.3%)”. Central Bank expressly acknowledges his guilt in the restriction of investment activity, which is called “moderately stringent conditions of lending to corporate borrowers.” But the Bank of Russia is guided by another Roman Maxim: “Do what you must (and the Central Bank puts its priority to the suppression of inflation), and whether that will be based deceleration in investment activity)”.

The General conclusion: “Dynamics of macroeconomic indicators in August in line with expectations the Bank of Russia and has not led to a change in the estimates of the annual rate of decline in GDP in the third quarter (0,4–0,7%) and in 2016 in General (0,3–0,7%)”.

In General, steady decline. And no end of the recession, at least in 2016.

“And, of course, humming together is better”

The conclusions of the Central Bank is worth considering. To them and listen. “RIA Novosti” that according to the Central Bank conducted a survey of economists.

GDP in the mirror of their predictions as follows. Alexei Devyatov, chief economist of the Center for economic and financial research and development (CEFIR) new economic school (NES), said: “the Russian economy will return to growth in the fourth quarter due to moderate growth in industrial production.” Dmitry Polevoy, chief economist at ING in Russia and the CIS, agreed in principle, but adds the caution: latest data indicate a very slow recovery in key indicators, but it remains extremely fragile, and any external shock can hold up economy around a low point.

The greatest interest, as we have seen, the dynamics of industrial production. The Minister of industry and trade Denis Manturov in late September said that it is still at the end of 2016 expects growth of industrial production in Russia on 0,5–1%. Alexei Ulyukayev slightly less optimistic: at the end of the year, he expects industry growth of 0.3–0.5%.

As for inflation, then in August it turned out to be zero, and in annual terms slowed to 6.8 percent from July’s 7.2 percent. The Bank of Russia then narrowed its forecast for inflation in Russia in 2016 to 5.5–6%. The Finance Ministry expects inflation to end the current year at 5.7%. The Minister of economic development Alexei Ulyukayev believes that the figure will be 5.7–5.8 percent.

Experts are not burdened by the public posts, said “RIA Novosti” that it was agreed that in the fourth quarter, inflation will continue to slow. Yaroslav Lissovolik, chief economist at the EDB, predicts: “Stabilization and even strengthening of the ruble contribute to the reduction of inflation, and by the end of this year, we expect inflation to fall below 6%”. “Inflation has the potential to be lower than our conservative estimate of 6.5% at the end of the year — I agree with my colleague Stanislav Murashov, the macro analyst of Raiffeisenbank. And explains: “This will happen as due to the effect of high base last year, and by reducing the monthly growth rates of the components of inflation. Besides, food inflation declined under the influence of expectations of a good harvest, while non-food retail is experiencing the positive impact of a stable exchange rate of the ruble.”

Well, the roast: what happens with the oil and, consequently, the ruble? The Ministry of economic development refused in April to a conservative scenario with an average annual oil price of $ 25 per barrel. Conservative now called the base variant (oil — $ 40 per barrel for the next three years). A more optimistic scenario — “basic plus” and the target (the average annual oil price is 50-55 USD).

Lissovolik offers to proceed from the fact that “there is a decrease in the dependence of the ruble on the price of oil in the conditions of strengthening of the factor of capital flows — in this case, we observed a significant reduction of capital outflow in the current year compared to the previous year, which reduces the possibility of extreme scenarios for the fourth quarter of 2014 and 2015”. He believes that oil prices and the ruble has found its range in which they remain for several months: “For the ruble this interval, we see from 63 to 68 rubles to the dollar and believe that the ruble is likely to be closer to the upper boundary of this range by year-end (67-68 rubles per U.S. dollar).

A test of the accuracy of conclusions on “reducing the dependence of the ruble on the price of oil and the sustainability of the range of fluctuation of oil prices and the ruble will be the market reaction for every action in the series: “OPEC and Russia agree on the regulation of oil production”. Although the ninth confidently predicts the results of this test: Attempts to restrict production have not yet led to success. Moreover, since we are talking about the freezing of production at current high levels, measures to restrict the supply of oil on the market is unlikely to make a significant contribution to the stabilization of prices.”

Who sounded the lift?

About the driver of the rise of the “RIA Novosti” respondents did not ask. And those that might have not thought. Today one, tomorrow — another, important total.

This approach is quite legitimate. But he leaves behind the question about state support of growth points. Have the attitude that this support is rather harmful. It is associated with public investment different kinds of benefits, and they, in turn, open another Pandora’s box with the corruption Hydra and inefficient squandering gosdeneg. Not without. Clean gloves are good. But if you think about what constitutes the Russian economy as it is to it may belong, 60-70% gosudarstven, the government’s refusal to support growth points at least strange. Especially if you agree with the Bank of Russia that Russian investments are beginning to Wake up. They should announce the Wake-up, and this can it government investment or investment powerful state-owned companies. More than just a nobody.

It is clear that it should not be investment in expanding, as they had blurred the ink blots in notebooks losers, projects like the stadium “Zenit arena”. By and large, the choice was made when Alexei Ulyukayev offered 100% of the funds of the national welfare Fund to direct investments in infrastructure projects. The logic is that infrastructure is necessary for all, in addition, it attracts private investment, no less than a healthy business climate. No wall between, or improve the business climate and institutional reforms or public investment in major infrastructure projects is not and should not be. It is necessary to move in both directions.

But the state continues to distance itself from reforms and investment service. Thereby narrowing the prospects not only of the economic output of the edge between recession and stagnation, and move on.


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