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04.03.2014 00:05 Russia Raises Main Rate as Ukraine Crisis Threatens Economy

Russia raised its main interest rate the most since 1998 to shore up the economy as concerns that President Vladimir Putin will invade Ukraine sent the ruble tumbling and sparked the biggest stock selloff in five years. The one-week auction rate, the benchmark introduced in September, was increased temporarily to 7 percent from 5.5 percent, the Bank Rossii said on its website today. The 150 basis-point move was accompanied by similar increases in other major lending rates. Putin gained parliamentary approval to send troops into Ukraine last week after Pro-Russian forces took control of the neighboring country`s Crimea region. European and U.S. leaders have threatened sanctions against Russia, creating risks that economic growth will stall, demand for the country`s assets will dry up and a selloff in the currency will deepen. Foreign reserves fell to a three-year low of $490 billion on Feb. 7, a week after Deputy Economy Minister Andrey Klepach said that capital outflows may reach $35 billion in the first quarter, more than half of the $63 billion that left Russia in all of 2013. The ruble is trading above the last announced level of the central bank`s corridor, raised to 35.40 to 42.40 on Feb. 28, which means that regulator is selling foreign currency and buying rubles without daily limits to slow its depreciation. Yields on government bonds jumped most after the unexpectedly rate increase aimed at stemming short-term volatility. The yield due February 2027 rose 48 basis points, or 0.48 percentage point, to 8.84 percent, the highest since June 2012 and within 25 points of the record high.

02.03.2014 00:33 Great economic miracle of Russia: Myth or reality?

Scientists and economists who recently met with Vladimir Putin believe that Russia has sufficient scientific and technical reserve for economic growth. According to the scientists, the activation of the intellectual potential and the rise in labor productivity will help the economy. Economist Igor Bogdanov told Pravda.Ru about possible obstacles. Russian President Vladimir Putin met with economists from RAS to identify and discuss the points of growth of the currently stagnant Russian economy. The President was presented a report compiled by 70 scientists. According to Rossiyskaya Gazeta, head of RAS Vladimir Fortov who presented the report stated that the main reserve of growth for the Russian economy was its scientific, technical and intellectual potential. The report shows that Russia has sufficient potential to stimulate the stagnant economy. Head of the Russian Academy of Sciences Vladimir Fortov made a similar comment at a meeting with the President, noting that "it is often easier to implement developments abroad than in Russia." Therefore we may hope that measures to stimulate demand for intellectual resources will also be considered. Economists estimate that if priorities are set according to the developed plan, GDP growth at the rate of 6-8 percent may be expected. Understandably, the report of the Russian Academy of Sciences is only part of the work to find a way out of the impasse faced by Russia last year. Now the biggest decisions are up to the government.

02.03.2014 00:22 U.S. economic growth revised sharply downward

The recovery appeared to be reaching escape velocity at the end of December, but it turns out the economy wasn`t expanding quite as fast as initially thought and that doesn`t bode well for hopes of a breakout this year. The Commerce Department sharply reduced its estimate of fourth-quarter growth to a moderate 2.4% annual rate. Friday`s revision downsized big gains in consumer spending and exports from its initial estimate of 3.2% in January. The updated figures on total economic output, known as gross domestic product, indicated the economy entered this year with less momentum than analysts had anticipated. And the lower rate added to concerns that recent lackluster economic data could signal even weaker growth in the weather-battered first quarter. Consumer spending was higher than the 2% annual growth rate in the third quarter. And the pace at the end of last year was the best since the first three months of 2012. The revised export data also were strong, growing at the fastest pace in three years. In addition, business investment was revised up to a 4.5% annual rate in the fourth quarter from the initial estimate of 3.4%. But it was down dramatically from a 17.2% increase in the third quarter.

27.02.2014 15:33 Russia`s economy: Stronger than you think

Many people who remember the collapse of the Soviet Union in 1991 and its tumultuous aftermath believe that Russia`s economy today must be impoverished and unstable and far behind booming China. Wrong. The International Monetary Fund (IMF) said Russia`s per capita income last year measured in terms of purchasing power parity is roughly US$18,600 (S$23,500), nearly double China`s per capita income of around US$10,000. And, according to World Bank data, extreme poverty is close to zero, compared with 11.8 per cent in China in 2009 (the most recent year for which data is available). After several years of political infighting and unnecessary delay, macroeconomic stabilization was achieved and Russia`s economic growth was restored, especially as world oil and gas prices began to rise. From 2001 to last year, Russia`s gross domestic product grew at a robust 4.4 per cent average annual rate. Russia achieved a good measure of financial stability as well. The IMF puts Russia`s inflation rate at 6.9 per cent last year, with unemployment at 5.5 per cent, while the budget deficit was only 0.3 per cent of GDP. Moreover, Russia`s foreign-exchange reserves stand at a healthy US$500 billion. However, Russia could achieve still greater success by basing its economy on two growth engines rather than one. Oil and gas will continue to provide a strong lift to the country for years to come, especially as China becomes a major customer. Nevertheless, Russia also has vast and still under-developed potential in many global high-tech industries. Russia has the know-how, skilled engineering and natural-resource base to become a global competitor in a range of major high-tech industries, including nuclear energy, commercial aviation, commercial space technology (including satellites and GPS), ICT hardware and software, electric vehicles, high-speed rail, petrochemicals, and heavy equipment for the mining and hydrocarbon sectors. All of these industries will benefit from the potential for enormous demand growth in large markets such as China, Africa and India. However, achieving long-term growth led by high-tech industries requires a business environment that encourages private-sector investment, including openness to foreign players. Moreover, the social and political environment must be conducive to a high-tech labour force, providing an attractive quality of life, ensuring civil liberties, and supporting entrepreneurship and creativity. Finally, economic policies must promote technological advances and global technical cooperation in promising sectors.

26.02.2014 17:36 World economic recovery struggling to gain traction

Another month of slower factory activity in China and a sharp decline in a closely watched gauge of U.S. manufacturing added to concern about the state of the global economy. Surveys also showed business activity across the 18-country euro zone slowed this month, confounding expectations of an acceleration. U.S. stocks edged higher, however, as investors continued to shrug off tepid data while stocks in Europe recouped earlier losses, though sentiment remained fragile. Investors were also concerned about minutes of the Federal Reserve`s most recent meeting, which showed the U.S. central bank was set to keep winding down its stimulus spending despite recent softer economic data. "While we expect the recovery to continue during the course of this year, the market remains volatile in the near-term as investors are nervous on the back of the U.S. tapering story," Henk Potts, equity strategist at Barclays Wealth, said.

24.02.2014 22:34 Shock investment slump and no Sochi surge deepens Russia`s economic woes

A dramatic slump in capital investment by Russian companies in January pointed to Russia`s ailing economy continuing to deteriorate fast. There was no sign in data of a boost from preparations for the Sochi Olympics as investment fell by 7 percent compared with a year earlier, a huge undershoot compared with analysts` forecasts in a Reuters poll of a 0.5 percent rise. The unexpected plunge in investment last month comes after a year of stagnation. It fell by 0.3 percent in 2013, according to official estimates - a major factor behind lackluster economic growth of 1.3 percent last year. The investment malaise underscores the poor state of Russia`s business climate and boosts the argument of those calling for structural reforms to diversify an economy that is too dependent on stagnant natural resource sectors. The central bank lowered its mid-term economic growth forecasts, anticipating growth of below 2 percent until at least 2016, in an acknowledgement that Russia`s economy will be sickly for some time.

24.02.2014 18:42 G20 vows to boost world economy by $2 trillion

Finance chiefs from the 20 largest economies agreed Sunday to implement policies that will boost world GDP by more than $2 trillion over the coming five years. The world economy has sputtered since the 2008 financial crisis and global recession that followed. Progress in returning economic growth to pre-crisis levels has been hampered by austerity policies in Europe, high unemployment in the U.S. and a cooling of China`s torrid expansion. The centerpiece of the $2 trillion commitment made at the Sydney meeting is to boost the combined gross domestic product of G20 countries by 2 percent above the levels expected for the next five years, possibly creating tens of millions of new jobs. World GDP was about $72 trillion in 2012. The communiqué from the meeting said signs of improvement in the global economy are welcome but growth remains below the rates needed to get people back into work and to meet their aspirations. The G20 said it would "significantly raise global growth" without overtaxing national finance through measures to promote competition and increase investment, employment and trade. As an initial step toward achieving the $2 trillion target, each country will present a comprehensive growth strategy to a summit of leaders scheduled for November in the Australian city of Brisbane. The International Monetary Fund forecasts the world economy will grow 3.7 per cent this year. It said the G20 plan could lift annual world economic growth by half a percentage point for the next five years.

23.02.2014 17:55 Sliding ruble to drag Russian economy into recession

Russia`s GDP growth turned negative in January, with the lowest investment since 2010. Analysts say uncertainty surrounding the ruble, which hit its all-time low against the euro on Wednesday, is weighing on the economy and could drag it into recession. Russia`s GDP shrank during the first month of 2014, though so far there are no exact numbers. Inward investment slid 7 percent year on year in January, as real income was down 1.5 percent and wages grew the slowest since 2009, according to the report by Russia`s statistics service Rosstat. Retail growth also slowed to a four-year low at 2.4 percent. Ruble devaluation will benefit Russian exporters, but it won`t have any effect on investment, as the companies will keep their money in dollar accounts abroad. Analysts say the recent fall was caused by the announcement by Russia`s Ministry of Finance that it would buy about $6 billion (212 billion rubles) from the market by the end of May to transfer additional oil revenue to the Reserve Fund. The so-called banking clean-up in Russia was another huge blow to the economy, as the country`s banks have cut lending and people are shifting their savings from smaller banks to big state-owned ones.

19.02.2014 17:56 Emerging-Market Tremors Shake the World Economy

Emerging-market crises were supposed to be passé - a relic of the rocky 1990s, when investors suffered through the Tequila Crisis and the Asian Contagion in rapid succession. But history is stubbornly repeating itself. Emerging markets erupted afresh during last summer`s Taper Tantrum - who comes up with these names, anyway?- and as 2014 begins there`s turmoil from South America to Asia. Most at risk are poorly governed countries such as Argentina and Ukraine that became addicted to hot money from foreign investors in search of high returns. Those capital flows are sloshing back to developed economies like the U.S., leaving submerging economies behind. Countries with stronger finances and a unified citizenry are in less trouble, so the likelihood of another full-blown emerging-markets crisis remains low. Yet some of them could be dragged down if investors flee in a panic. Events can unfold very rapidly if a disorderly process takes hold, Morgan Stanley (MS) analysts warned clients on Jan. 27. Each emerging country is unhappy in its own way, making it hard to predict what happens next - and prescribe a one-size-fits-all policy fix. You don`t have a silver bullet here, says Pablo Goldberg, head of emerging-markets research at HSBC Securities (HSBC).

18.02.2014 20:13 The world economy will have a bumpy 2014. But the recovery is not, yet, at risk

For much of 2013 the world`s big stock markets had a magical quality about them. They soared upwards - America`s S&P 500 index rose by 30% last year, and Japan`s Nikkei by 57% - buoyed by monetary stimulus and growing optimism about global growth. Over the past month, the magic has abruptly worn off. More than $3 trillion has been wiped off global share prices since the start of January. The S&P 500 is down by almost 5%, the Nikkei by 14% and the MSCI emerging-market index by almost 9%. However, the assessment of the evidence to date is that investors` gloom is overdone. A handful of disappointing numbers does not mean that America`s underlying recovery is stalling. China`s economy is slowing, but the odds of a sudden slump remain low. Although other emerging markets will indeed grow more slowly in 2014, they are not heading for a broad collapse. And the odds are rising that monetary policy in both Europe and Japan is about to be eased further. Global growth will still probably exceed last year`s pace of 3% (on a purchasing-power parity basis). For now, this looks more like a wobble than a tumble.


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