The Lastest Macroeconomic News
06.12.2013 18:59 Will the stagnating economy bring about much-needed structural reform?
Throughout the 2000s, the Kremlin funneled profits from oil and gas into the rest of the economy, largely through state-led investment projects and increases in wages and pensions. Consumption soared. Spare industrial capacity left over from the Soviet era meant that firms did not have to invest to produce more. They could simply unlock capacity that had been sitting unused. That model is now outdated. High prices for hydrocarbons will not solve this, because the economy has now “adapted” to expensive oil. Future growth will require investment in new technology as well as gains in efficiency and labour productivity. The trouble is that Russian businesses cannot compete on quality either, since they are not investing in technology and equipment. This is related to the uncertainty of the business climate and the attractiveness of imports thanks to the strong rouble. The lack of opportunities has led to capital flight. An underdeveloped financial system offers no efficient way to channel surplus savings to the small and medium-sized businesses that need them. Even without meaningful structural reform, Russia`s low government debt and high reserves mean that the state could buy itself a minimum level of social - and thus political - stability for some years to come. But it will be more vulnerable than ever to outside shocks. The oil price at which Russia can finance budgeted spending without borrowing has increased from just $34 a barrel in 2007 to above $100 for the years ahead. The hazard of stagnation is the “lost opportunity” to make the economy more robust. A large downward lurch would leave the Kremlin with less freedom to act than it has now. The good news for Russia is that Mr Putin does not need to spend a lot of money to make the financial system more efficient or the state`s role in the economy less heavy-handed; but the bad news is that he has to embrace “a new idea of how to structure the economy”.
04.12.2013 12:49 The Economy Ministry of Russia cut its 2013-2015 gross domestic product growth forecast
The Economy Ministry of Russia cut its 2013-2015 gross domestic product growth forecast after months of data pointing to stagnant corporate investment as well as declining growth in consumer demand. The revisions, a few weeks after Russia admitted for the first time that its economy would lag global growth over the next two decades, added ammunition to arguments that Russia needs a new growth model. "Stagnation will definitely continue, with moments of recovery," Economy Minister Alexei Ulyukayev said. Despite an average price of oil, Russia`s chief export, above $100 this year, Ulyukayev said GDP was likely to grow only by 1.4 percent, compared to an earlier forecast - itself reduced - of 1.8 percent. The new forecasts envisage growth inching up to 2.5 percent next year, and 2.8 percent in 2015: down from previous forecasts of 3 percent and 3.1 percent respectively. The ministry then expects growth to average 2.5 percent over the next two decades, very modest for an emerging market more used to growth rates above 6 percent in the previous decade.
02.12.2013 20:06 Russian government embraces cluster strategy
Fifty percent of the world`s economies are now using "cluster strategy" to achieve growth, and as Russia attempts to wean itself off its dependence on natural resources, it`s embracing the same this line of economic development, setting up various clusters across its vast territory. A cluster, or a group of related firms and economic institutions specializing in the same industry and located near one another, is believed to bring about synergies for small and mid-size businesses. And though the strategy has been taken up only recently, there are success stories in the oil-rich country. Some regions specialise in car manufacturing, some in pharmaceuticals, others in IT or aeronautics – many industries that are part of global trends are being developed in regional clusters across Russia. For example, there is a huge cluster in St Petersburg for light manufacturing, alcohol, and car manufacturing which is already proving very successful. They are pulling in more and more investment, because the infrastructure is there, the work force is there and everything is in place. Kaluga, a region not particularly rich in minerals in oil, or anything, has been very successful in creating business environment. Mordovia has become a centre of Russia’s lighting industry, with plants manufacturing lighting equipment working for the benefit of the entire country, along with lighting design companies and distributors. The volume of subsidies is more or less equal and amounts to two million pounds per cluster. All of them have different models of territorial organisation, as well as various ration of science-technological activity and manufacturing capabilities. Yet, all feature high growth of production volumes, R&D potential and educational facilities based within every cluster. Clusters are a relatively young initiative but there is hope they will bring about growth of Russia’s economy in long-term. Some of the clusters across Russia have gone beyond national boundaries and can boast international cooperation – with France, Germany, Belgium, the Netherlands – to name a few. So clusters help not only to attract foreign investors but also Russian companies to go abroad, as it is easier for a business to find overseas partners if it is part of a larger entity such as a cluster.
30.11.2013 14:58 Russian Investment Falls More Than Forecast as Joblessness Rises
Russian investment fell more than economists estimated and unemployment rose to a six-month high as rising incomes helped shield consumer demand in October. Fixed-capital investment shrank for a third month, falling 1.9 percent from a year earlier after a 1.6 percent drop in September, with the jobless rate growing to 5.5 percent, the Federal Statistics Service in Moscow said in an e-mailed statement. Economists forecast unemployment at 5.4 percent and saw a 1 percent contraction in investment, according to the median estimates in two Bloomberg surveys. Retail sales grew 3.5 percent from year earlier as real wages jumped 4.1 percent. Real disposable incomes surged 4.9 percent in October after a revised 0.8 percent decline in the previous month, topping the median estimate of seven economists in a Bloomberg survey was for a 2 percent increase. Growth in retail sales exceeded economist projections both on an annual and monthly basis. Gross domestic product grew less than estimated in the third quarter, expanding 1.2 percent from a year earlier, the same pace as in the previous three months.
29.11.2013 15:33 Russia`s Economy Ministry said that the ruble could depreciate further in 2013
Russia`s Economy Ministry said that the ruble could depreciate further in 2013, weakening the currency to levels not seen for more than four years. The slide has come despite high oil prices and the ongoing tax collection period, which would normally be expected to increase demand for the domestic currency as businesses pay off their dues to the state. Economy Minister Aleksei Ulyukayev admitted there was a small chance the ruble`s fall could gather pace, the Prime news agency reported. The ruble has this week risen 1.4 percent against the euro-dollar basket, the currency benchmark used by the Bank of Russia. Russia is moving toward a free-floating ruble as part of a shift in monetary policy priorities. The Bank of Russia has widened the corridor in which it sells or buys currency six times this month. Bank of Russia deputy chairman Ksenia Yudaeva said that the ruble`s decline has been caused by external factors. But some analysts have linked the fall to a growing lack of trust in Russia`s banking system. Meanwhile, former Finance Minister Alexei Kudrin said that for Russia`s current model of economic growth to work, oil prices need to grow by $20 to $30 annually. But no changes can be expected until the Russian government gets its act together. Alexei Kudrin said the current problems of Russia`s economy are a result of an economic model heavily dependent on oil revenues.
28.11.2013 20:23 Technology Expert Sees Fear of Failure Inhibiting Russian Innovation
Despite its extraordinary scientific capacity, a stated desire to be competitive and the availability of capital, it may take several generations before Russia`s investment in innovation will bear fruit, a report by MIT on the country`s role in global innovation shows. Russia has many of the necessary elements to take its place next to the U.S. and China as one of the great developers of global technologies, said Jason Pontin, editor-in-chief of MIT`s Technology Review, which conducted the research. But there are things that Russia is doing to encourage innovation that are really not best practice, he said in an interview. "I did not know how idiosyncratic Russia`s understanding of the innovation process was," Pontin said. "I admire Medvedev`s commitment to making Russia a technological center of the world. Russia does have the intellectual capacity to do it." But there is an important aspect of corporate governance here that puts Russian technology entrepreneurs at a disadvantage, he added.
26.11.2013 20:23 Economists lowered the forecasts on growth of gross domestic product of the USA in the next two quarters
Economists lowered the forecasts on growth of gross domestic product of the USA in the final quarter of the year and the first three months of 2014 but predicted a slightly higher rate of job growth over the next four quarters. Analysts see the economy growing at an annual rate of 1.8 percent in the current quarter, down from a previous estimate of 2.3 percent, according to the Philadelphia Federal Reserve`s quarterly survey of 42 forecasters. Growth in the first quarter of 2014 was seen picking up to 2.5 percent, though that, too, was down from a prior estimate of 2.7 percent. The economy is expected to grow at a rate of 1.7 percent for all of 2013 and 2.6 percent in 2014. Inflation was expected to remain muted, with year-on-year headline consumer price inflation averaging 1.4 percent in the fourth quarter of 2013 and 2 percent in the fourth quarter of 2014. Those numbers were unchanged from prior estimates. The year-on-year core reading of CPI, which removes food and energy, was also steady at 1.8 percent in 2013 and 2 percent in 2014. On a quarter-on-quarter basis, core CPI was forecast at 1.7 percent in the fourth quarter and 1.9 percent in the first three months of next year. Both were revised down slightly from the previous forecast.
21.11.2013 21:01 OECD sees economic rebound in CEE in 2015
The OECD expects central and eastern Europe`s economies to advance in 2015 after a mixed picture next year as the region tries to overcome the impact of a slump in the euro zone, it said. The organisation urged Slovenia to move quickly to repair bank balance sheets and shore up the sector as the most pressing task to stabilise its economy. The OECD raised Poland`s growth forecasts for this year and next to 1.4 and 2.7 percent from May`s outlook for 0.9 and 2.2 percent, citing rising exports and domestic demand. It saw 2015 growth of 3.3 percent. Slack in the economy will hold inflation pressure down for some time before price increases rise to above 2 percent in 2015. "With diminishing spare capacity, the central bank will need to begin removing monetary stimulus by increasing its policy rate in 2014," it said. As growth pick ups and monetary policy remains fairly accommodative, the government had scope in 2015 to reach medium-term fiscal consolidation objectives faster than planned. The OECD raised its outlook for Hungarian growth to 1.2 percent this year and 2.0 percent next from a previous 0.5 and 1.3 percent. It then sees growth slipping back to 1.7 percent in 2015. It suggested Budapest could foster lending by allowing better bank profitability and cleaning up bank balance sheets. "Since further monetary easing entails risks, notably of currency depreciation, and domestic demand is already picking up, the policy rate should stay on hold for now. As economic slack diminishes and inflation begins to rise, the monetary stance should start to gradually normalise," it said. The OECD cut its Czech GDP forecast to -1.5 percent and 1.1 percent for 2013 and 2014, from a previous -1.0 and 1.3 percent. Growth in 2015 was seen at 2.3 percent. Growth was expected to gather pace in 2014 as fiscal consolidation pauses and external demand accelerates, although unemployment was likely to decrease only marginally. "Positive growth surprises should be used to halt and eventually reverse the rising debt-to-GDP ratio. Monetary policy should remain accommodative as inflation is low and expectations appear well anchored," the OECD said. Slovakia`s growth forecasts were little changed at 0.8 percent this year and 1.9 percent in 2014, from 0.8 and 2.0 percent respectively, before the economy expands 2.9 percent in 2015. Growth will strengthen as improved export markets boost investment and exports, especially in the automotive industry, the OECD said. But joblessness will weigh on private consumption growth, and austerity to cut the budget deficit will damp demand. "Downside risks are related to the uncertainty concerning the euro area crisis and the fragility of the recovery of Slovakia`s main export industries," it said. Slovenia, the euro zone country, grappling with big losses in its largely state-owned banking sector, should see its economy shrink by 2.3 percent this year and 0.9 percent next year before swinging back to 0.6 percent growth in 2015. In May the OECD had seen GDP down 2.3 percent this year and up 0.1 percent in 2014. "Repairing bank balance sheets and ensuring recapitalisation of banks are the most important policy issues for stabilising the economy," it said.
19.11.2013 17:07 The OECD again cut its 2013-2014 growth outlook for Russia
The OECD again cut its 2013 growth outlook for Russia, to 1.5 percent from the 2.3 percent it forecast in May. It also reduced its 2014 outlook to 2.3 percent from 3.6 percent, but saw growth picking up to 2.9 percent in 2015. Growth should gradually strengthen thanks to infrastructure spending and investment in the mining sector as the euro area recovers. Low unemployment should keep consumption growth solid, it said. Interest rate cuts would not be appropriate until core inflation declines more rapidly, while currency depreciation adds to inflation pressures, it said, adding: "Little space is available for monetary policy rate cuts in 2013 and 2014." Russia`s economy grew less than estimated in the third quarter as a lack of investment kept the world`s largest energy exporter from reversing its worst slowdown since a 2009 recession. Gross domestic product expanded 1.2 percent from a year earlier, the same pace as in the previous three months, the Federal Statistics Service in Moscow said. That matched the Economy Ministry`s forecast and trailed the 1.4 median of 19 estimates in a Bloomberg survey.
15.11.2013 16:10 Eurozone economic recovery falters in third quarter
The eurozone`s economic woes persisted in the third quarter as Italy`s longest recession continued and a contraction in French output dragged growth down to 0.1%. In the summer, hopes of a strong recovery were boosted by a second-quarter GDP rise of 0.3%, but the momentum of the first half of the year has fizzled out. The figures gave weight to fears that high unemployment, low inflation and disagreements among political leaders over further moves towards integration will keep the currency zone locked into a prolonged period of low growth. In France, a slump in exports and business investment failed to offset strong consumer spending to leave François Hollande`s socialist administration to cope with a 0.1% decline in GDP. Italy, which has faced prolonged period of political instability, was also mired in economic gloom after a 0.1% decline in GDP in the third quarter extended the country`s recession from the summer of 2011 to nine quarters. Of the smaller eurozone members, Austria returned to growth after a flat summer period with a 0.2% rise in GDP, while the Netherlands, which also flatlined in the summer, nudge 0.1% higher and Finland managed a 0.4% expansion. German growth fell from 0.7% in the second quarter to 0.3%, though several analysts said the eurozone`s powerhouse economy was merely returning to its expected annualised rate of 1.2% a year.