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The Lastest Macroeconomic News

24.01.2014 15:55 Ruble Drops to Five-Year Low

The Russian ruble dropped to a five-year low on January 24th and both officials and market players expect its depreciation to continue. Versus the euro-dollar basket, the central bank`s main barometer of the currency market, the ruble slipped to 40, a level last seen in February 2009, during a financial crisis that was accompanied by so-called controlled devaluation, when the central bank was intervening heavily to avoid a rapid drop in the ruble rate. The ruble has shed more than 3% versus the basket so far this year after weakening by nearly 10% in 2013. The ruble came under pressure in the middle of last year amid expectations that the U.S. Federal Reserve would taper its stimulus efforts, while slowing economic growth and heavy capital flight hit the currency domestically. Seasonally higher gas exports and the Winter Olympics were widely expected to help the ruble to recover early this year but that hasn`t materialized yet. Economy Ministry Alexei Ulyukayev said that the ruble now has more chance to ease than strengthen because of the deteriorating current-account surplus.

20.01.2014 21:46 Medvedev said Russia needs to boost small businesses in 2014

Prime Minister Dmitry Medvedev told investors that Russia, as the world`s ninth-largest economy, faces an array of “critical masses” to spur growth this year after a set of disappointing figures in 2013, a year of broken illusions for Russia. GDP added just 1.3 percent, while most analysts expected an average growth of 4 percent. Medvedev said 21.5 billion rubles ($640 million) in government subsidies were doled out in support of small- and medium-sized businesses in 2013, and it will be more in 2014. Small businesses contributed 20 percent to Russia`s GDP in 2013, and Medvedev predicts it will continue to be a force in boosting economic growth in Russia. The goal is to increase the contribution to 50 percent by 2020, to mirror Europe`s small business economic model, which is currently at about 50 percent. On paper the plan is good, but implementation hasn`t been stellar. Statistics show four million small businessmen were registered at the beginning of 2013, and by the end, this number had dropped close to 3.5 million. Stagflation, ineffective state-owned companies, a dip in oil prices, capital flight, and weak investment all pose direct threats to the Russian economy in 2014.

18.01.2014 20:43 OECD Report on Russia Specifies Ills and Antidotes

Russia needs to address its poor business climate and improve education to reverse an economic slowdown that is being compounded by its structural problems, the Organization for Economic Cooperation and Development, or OECD, said. The OECD said Russia`s economic downturn was primarily the result of a slide in its growth potential, in addition to the end of the period of fiscal expansion that preceded President Vladimir Putin`s election to a third Kremlin term in 2012. The OECD report said recent signs of a crackdown against corruption by the authorities appeared to be genuine, and welcomed signs that companies are less concerned about the efficiency of the court system than in the past. But it was concerned that Russia`s record on press freedom was not improving - noting Russia ranks 148th out of 179 countries, according to a press freedom index published by Reporters Without Borders. The OECD criticized recent restrictions on public assembly and nongovernmental organizations, or NGOs, as negative for transparency and accountability. Corporate governance is also a key problem, the report said, leading to low company valuations and reduced revenues from privatization. It recommended requiring state-owned companies to comply with tough stock exchange listing requirements. The OECD also criticized Russia for the prominent role played by state companies in the economy, calling for it to push ahead with privatization of state companies and banks that dwarf their private-sector competitors. It adding that an ambitious plan for the government to sell its holdings in all sectors except natural monopolies, oil and defense, was significantly scaled back last year.

16.01.2014 20:31 Rich nations to get richer: World Bank raises forecast to 3.2% growth

The world economy has reached a turning point five years after the global financial crisis hit. The World Bank expects growth to pick up in 2014 led by the US, Europe, and Japan, and warns of `turbulence` from a slowing China as well as US tapering. Overall, the Washington-based organization sees the world economy expanding 3.2 percent in 2014, in their first report of the year, `Global Economic Prospects`, a bi-annual publication published on Jan 14th. The Bank has bumped up expectations for "high-income countries", which they say will grow 2.2 percent in 2014, up from 1.5 percent in 2013. A growth pick up will be supported by the US, which has shown strong signs of recovery and the 18-member euro currency zone, which dragged down other economies in 2013 on weak consumer demand and imports. Increased import demand should help compensate for more US tapering measures, which could deliver a big blow to emerging markets. Developing markets are vulnerable to risk both from China and US tapering, and commodities will continue to be sensitive to both factors. China`s economic growth, which dropped below 8 percent for the first time in 20 years, will continue to slow. GDP is estimate to remain `flat` at 7.7 percent, and then decrease to 7.5 percent in 2015 and 2016. Growth in the world`s second-largest economy has been lackluster because it is shift into a more sustainable consumption-based, instead of an export-led economy, which led to sensational growth in the 90s. Russia`s economic growth is set to accelerate to 2.5 percent this year from 1.4 percent in 2013, according the government. The World Bank optimistically forecasts growth at 2.2 percent in 2014, 2.7 percent in 2015, and 3.0 percent in 2016. Projections for BRICS countries were cut. Brazil`s growth forecast was cut to 2.4 percent from 4 percent, for Mexico to 3.4 percent from 3.9 percent and for India to 6.2 percent from 6.5 percent. Developing countries will accelerate `modestly` between 2013 and 2016, but “the slower growth is not cause for concern” the report said.

15.01.2014 14:06 Germany 2013 GDP Rises 0.4%; 4Q Up About One Quarter

German GDP growth eased to its slowest pace in four years as slower export growth and another fall in domestic investment contributed to the weakness, the Federal Statistical Office estimated. Real GDP rose 0.4% on the year, driven entirely by internal consumption, after +0.7% in 2012 and +3.3% in 2011. The full-year estimate was slightly below the median forecast of +0.5% in MNI`s poll of analysts. "The economic situation in Germany has improved over the course of the year 2013 after a weak phase last winter," Destatis President Roderich Egeler told reporters in Berlin, adding the numbers showed Germany`s economy remains "stable." Preliminary figures for the full year suggest that GDP rose about one quarter of a percentage point in 4Q, according to Norbert Rat of Destatis, following a 0.3% quarterly rise in 3Q. Rat estimated the statistical carryover into this year would come to +0.5% after a negative carryover in 2012. Destatis emphasizes that its 4Q estimate is only from preliminary assumptions. Official 4Q preliminary figures are scheduled for release on February 14, with a detailed breakdown planned for February 25.

10.01.2014 14:24 New challenges for Russia`s economy in 2014

Next year may prove quite challenging for the Russian economy, as the negative trends carry over from 2013. Experts warn that the economic forecast offered by Russia`s Ministry of Economic Development may be too optimistic. The government needs to be prepared for decisive action in order to improve the situation, a the key negative trends which slowed Russia`s economic growth in 2013 are expected to carry over into 2014. Most experts agree that GDP will grow at a modest 1 percent to 2 percent in 2014, or below the forecast of the Ministry of Economic Development. "No fast economic growth is to be expected in 2014," said Maxim Petronevich, the chief expert at Gazprombank`s Center for Economic Forecasting. "It could prove to be as slow as 1 percent to 1.5 percent, even despite the positive effect of the Sochi Olympics. However, this should not be perceived as a negative trend. Slow growth is a natural phenomenon and a normal phase of any economic cycle anywhere in the world." Petronevich believes there will be an active revision of economic growth drivers in 2014. The private sector, supported by private initiative, is a promising big segment with minimum government intervention. Another opinion has it that the defense industry may become a new growth area. "New production enterprises and new jobs may get created in this sector, and this will have a multiplier effect," said Vladimir Klimanov with the Russian Academy of the National Economy of the Russian Government (RANEPA). "Entire chains of related production facilities may be set up, supporting the development of individual regions."

05.01.2014 23:33 China`s GDP growth in 2013 set to be weakest since 1999

China`s economy, the world`s second largest, may have grown around 7.6 per cent in 2013, its weakest growth since 1999, with latest economic figures indicating sluggish economic activities in the last quarter. The National Bureau of Statistics (NBS) is scheduled to release China`s macroeconomic data for the fourth quarter and the entire year of 2013 later this month. China`s economy expanded by 7.7 per cent in the first nine months of 2013. GDP growth in the third quarter accelerated to 7.8 per cent from 7.5 per cent in the second. On December 25, a report submitted by the Cabinet to the parliament said China`s economic growth in 2013 is likely to stand at 7.6 per cent. If confirmed, it would be the weakest growth since 1999 in the aftermath of the Asian financial crisis. Reporting to the Standing Committee of the National People`s Congress, the top legislature, Xu Shaoshi, minister of the National Development and Reform Commission said international and domestic economic conditions have changed. Xu said China`s economy faced many problems. Service industries have still to realize their full potential, strategic emerging industries are in their infancy, and industries such as steel, cement, electrolytic aluminum, plate glass and shipbuilding experienced overcapacity. Financial risks are also looming, with a hefty proportion of debt financing concentrated on public infrastructure projects that only generate low returns in the long run. There is already oversupply in the manufacturing and real estate sectors, he was quoted as saying by the official Xinhua news agency. If China fails to handle its government debt properly, “it will easily trigger systemic financial danger”, Xu warned.

27.12.2013 19:27 Russian economy showed mixed results in 2013

The Russian economy started to stagnate at the end of the year. Throughout December, Russian and foreign experts lowered their forecasts of most key indicators. A review of forecasts shows different expectations, however, they all agree that the domestic situation, rather than external factors, was the biggest influence on 2013. There are two main reasons for this: - Reduction of investments into fixed assets by large state-owned companies, including the energy sector. This was a key factor that contributed to the economic slowdown in 2013. - A slowdown in consumer demand, due to large debt loads of the population. According to the Central Bank, the loan burden per worker is about 3.7 average monthly salaries. However, it is believed that despite the deterioration of individual indicators, the overall situation is not critical. In 2013, Russia`s economic policy was focused on balancing trade and economic relations with other countries, and reducing its dependence on the European market. Therefore, the main trends are the deepening of integration with Commonwealth of Independent States (CIS) countries and the strengthening of relations with Asian countries. Within the CIS, this comes via the development of a customs union with the prospects of forming a single economic space by 2017. The integration with East Asian countries in the field of oil and gas exports intensified as well, particularly in cooperation with China, South Korea and Japan. These countries became interested in Russia as well, and began to invest in resource projects, primarily in eastern Siberia. In 2013, Russia announced the country’s first low-cost airline and smartphone. The low-cost carrier, Dobrolet, a subsidiary of Aeroflot, has already started staff recruitments. This year also saw the arrival of the first Russian smartphone, the IotaPhone. Experts have called it an absolute breakthrough of the year.

26.12.2013 19:51 POLL - Russian economy set to disappoint again in 2014

Russia`s economy is now forecast to have grown in 2013 at less than half the pace expected at start of the year and will perform only slightly better in 2014, weighed down by weak investment and tapering consumer demand. A Reuters poll of 15 economists said that gross domestic product had risen just 1.4 percent this year, when last December they had predicted an expansion of 3.2 percent. Economists are also more pessimistic about the economy`s wellbeing next year than the government, envisaging growth of 2.0 percent, against the Economy Ministry`s forecast of 2.5 percent. Economists now say there has been no growth in investment in tangible assets, such as buildings and plants, this year. A year ago, they had expected such expenditures would grow by 6.0 percent in 2013. For next year, they now expect a small rebound to 2.0 percent growth. The pickup will come mainly from the expected spending from one of Russia`s oil windfall revenue funds on infrastructure. Economists expect consumer price inflation to come in at 6.4 percent this year and ease to 5.2 percent next year. The central bank`s initial forecast saw inflation at below 6 percent this year, but an unexpected rise in food prices has spiked the rate above the target. Analysts also expect a weakening of the rouble, which now trades near four-year lows. At the end of 2014, they see the rouble at 34.20 against the dollar.

20.12.2013 20:09 Russia`s people problem

The Russian government expects the economy to expand a measly 1.4 percent this year (less than half of the growth the US is likely to see) and long-term growth estimates have been trimmed to 2.5 percent a year. Much of that is down to the lack of reform which has left many big companies in the state`s (generally wasteful) hands, weak rule of law that deters investment and capital flight to the tune of tens of billions of dollars a year. Yet there is another factor that could be harder to fix - Russia`s poor demographic profile. The population started declining sharply in the early 1990s amid political and economic turmoil, falling by 3.4 million in the 2000-2010 decade, according to census data. The impact is set to be felt sharply from now on, exactly when children born in 1990s would have started entering the workforce. The consequences are already being felt. Russia will close more than 700 schools this year for lack of pupils and the jobless rate has dipped to a record low of around 5 percent, not because the economy is booming but because the country is running out of people who can take the jobs. Russian bank VTB estimates that the labour force will shrink at the rate of 0.3-0.5 percent a year over the next decade. The demographic wave is coming into the market. For the past five years, it was not felt by companies. Now we will see the impact of the population decline as more people become pensioners and fewer young people come to the jobs market. The growth rates of the past decade coincided with better demographics of the 1980s. So we have at least 10 years ahead that should be very painful. Russia can get around this problem to some extent by boosting labour productivity. But an average Russian produces in one working hour less than 40 percent of the output of a typical American worker, something Putin acknowledged yesterday to be a problem. Meanwhile, there was some good news on the demographic front: this year, for the first time since 1991, Russia`s birth rate is running above its death rate.


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