The Russian economy (catch all)

[Stan]

Firn,

I wrote earlier that Russia might be forced to raise again it's interest rate and last week it did so. Higher inflation and (unofficially) pressure on it's foreign reserves are the two reasons. The RCB finds itself indeed between a rock and hard place and has to hurt demand and growth due to Putin's primacy of politics...

Not sure I understand this chart. Seems 2004 and 2005 were far worse.

Historic inflation Russia (CPI) - This page features an overview of the historic Russian inflation: CPI Russia. The inflation rate is based upon the consumer price index (CPI). Two overviews are being presented:
the annual inflation by year for Russia - comparing the december CPI to the december CPI of the year before and
the average inflation by year for Russia - the average of 12 monthly inflation rates of a calendar year

I don't do pie charts

[Firn]

Firn,



Not sure I understand this chart. Seems 2004 and 2005 were far worse.

The target is 5% IIRC, now RCB's indicator seems to have hit 7.2% after 6.2% in Feb. The rate of change might have caused the RCB's reaction more then the absolute percentage...

The graph suffers from the start year with over 800%. Compared to that everything other seems inflationwise tiny



A better one. One has to keep in mind that wages, especially the public ones (I guess lots of bonuses for the FSB, Cossacks and so forth ) have outstripped productivity growth (maybe not for the FSB&Co, sorry ) for quite some time...

[OUTLAW 09]

Firn---you will enjoy this article--in addition to this MC with it's cutting off card operations to two Russian banks is costing themselves 3-4B USD in lost Russian business per month but that translates into even more in lost internal Russian business sales. It is interesting that the Russians are arguing the card business is over 780B USD per year.

Russians are arguing that they need now their own rating agency but that is 10 years away and with Russian criminal activity no one would trust the agency so they are tied to the three US rating agencies forever so to speak.

http://www.themoscowtimes.com/busine...es/499195.html

If one looks at this Interfax press release that just came out one wonders where Putin's mind is as it is the Russian oil industry that is dependent on critical specialized US oil industrial products, equipment and critical engineers---they cannot be in certain oil production areas substituted by other oil producing countries---so I am not sure just where the threat is to the US oil industry. One hears for the last three days out of Moscow the drumbeat that the sanctions are actually beneficial for us as we will and or must develop our own industries---but they forget to say at the same time just how long it will take they to build substitutions. IE for the military industrial base in the Ukraine will require up to 10 years to replicate in Russia.

04/29 23:25 PUTIN: IF EU'S, U.S.' SANCTIONS CONTINUE, WE WILL HAVE TO THINK ABOUT THEIR PRESENCE IN STRATEGIC SECTORS OF RUSSIA'S ECONOMY, PARTICULARLY IN ENERGY SECTOR

[Firn]

Hardly.
Besides, rating agencies are so very useless, nobody "needs" them - other than for rackets. It's about time we establish test runs to expose how useless the financial sector's judgement on risks is. I've seen it myself many times; flipping coins would be quicker, cheaper and in no way inferior to bankers deciding on business loan requests.

Partly true, but it does underestimate the mostly positive impact of ratings as a way to incentivize debtors to better their financial policies to get an easier and cheaper access on the market. It is only a tendency which comes at a price with plenty of counterexamples but it is a positive tendency.

For individuals on the investment side perhaps the best aspect is the ability to party shift responsability - at least you can shout that you bought only A+ or so. As most things this might have a negative impact on the mental effort to analyze the thing itself.

As the service of the rating agencies is relatively cheap compared to market volume I believe that they are worth it. In any case a bad rating might be unfair or plain wrong but it is still a real problem for the business, especially since the spread of tighter rules in entities like pension funds etc. A drop below 'investment grade' forces them to disinvest.

[Firn]

I found the official statement of the Bank Rossii pretty downbeat. As it is an official document and quite informative I will quote it in full. I will underline some of most important stuff.

On the Bank of Russia key rate

On 25 April 2014 the Bank of Russia Board of Directors decided to raise the key rate to 7.5 percent per annum due to higher inflation risks. The probability of inflation exceeding the 5.0% target at the end of 2014 has increased substantially. This has been caused by more pronounced than expected pass-through effect of the exchange rate dynamics on consumer prices, the rise in inflation expectations, as well as unfavourable conditions in the markets for some goods. The Bank of Russia does not intend to lower the key rate in the coming months. The Bank of Russia estimates that the adopted decision would ensure the decline in inflation to no more than 6.0% by the end of 2014.

In March - April 2014, the year-on-year consumer price growth rate rose and stood at 7.2% as of 21 April 2014. Weekly inflation has persisted at 0.2%. Inflation acceleration has been mainly caused by the larger than expected impact of exchange rate dynamics. Unfavourable conditions in the markets for some goods, such as dairy products, sugar, pork, and petrol, also have contributed to higher inflation rates. Some additional inflationary pressure has come from a temporary surge in consumer demand for non-food goods amid the rise of inflation expectations. As a result, there was the increase in prices for a wide range of goods, including domestically produced goods, as well as services. In March 2014, core inflation accelerated to 6.0% from 5.6% in February.

The current economic slowdown is predominantly structural by nature and thus does not exert any noticeable downward pressure on inflation. Historically low unemployment rate constrains economic growth potential. Due to demographic trends the impact of this factor will persist in the long run. Utilisation of commercially viable production capacity remains relatively high. Labour productivity growth is sluggish, while fixed capital investment continues to contract because of declining profits in the real sector, limited access to long-term financing in both international and domestic markets, as well as low producer and consumer confidence. Uncertainty about international political situation also hampers production and investment. Besides, weak economic activity in most countries, which are Russia’s trading partners, restrains the economic growth of Russia. At the same time, persistently high oil prices have a stabilising effect on the domestic economy and public finance.

In March - April 2014, household rouble deposit rates began to grow. This was caused by the conversion of funds to foreign currency due to higher inflation expectations and by increasing bank funding costs, inter alia, as a result of the Bank of Russia’s decision to raise the key rate in March 2014. In addition, banks tighten lending conditions, in particular, by increasing loan rates. At the same time, weak economic activity restrains demand for loans and respectively curbs a rise of interest rates on loans.

According to the Bank of Russia projections, a year of 2014 will continue to witness a downward trend in economic growth. Boost to economy from the observed rouble depreciation will be limited. Amid economic uncertainty and declining producer confidence there is a strong probability of a reduction in fixed capital investment. Combination of slower growth in real wages and a decline in household lending growth rates will have a dampening effect on consumer activity.

Inflation will stay around the current level until the mid-2014. In the second half of the year, consumer price growth will decelerate as a result of lower planned hikes in administered prices and tariffs, falling inflation expectations, and the aggregate output of goods and services remaining below potential. Since monetary policy affects the economy with a lag, the probability of inflation exceeding the 5.0% target at end-2014 has increased substantially. The adopted decision on the key rate would ensure the decline in inflation to no more than 6.0% by the end of 2014 and help to maintain the appropriate balance of inflation risks and the risks of further economic slowdown. In the medium term the effect of factors behind the observed acceleration in consumer price growth will be exhausted and in the absence of any new shocks to the economy inflation will hit the target levels set in the Guidelines for the Single State Monetary Policy in 2014 and for 2015 and 2016.

The next meeting of the Bank of Russia Board of Directors on the key rate is scheduled for 16 June 2014. The press-release on the Bank of Russia Board of Directors’ decision is to be published at 13:30, Moscow time.

I underlined more then I wanted, but it is a highly condensed statement. Love the CentralBank-speak. Some of it is new, like the lower then planned adm. hikes of prices while a good deal has already been discussed here, like the limited boost (what industry, what services?) to the economy by the rouble deprecation. Points rightly to the demographic situation and the currently low unemployment as limiting further growth which I didn't take into account as much as I should have. I'm sceptical about inflation falling below 6%. If it does it will likely do so for bad reasons...

[OUTLAW 09]

This doesn't surprise one, davidbfpo. Good stuff as usual kaur. Outlaw, a Russian rating agency will indeed carry little weight as most will (rightly) assume that it is, if not controlled, heavily influenced by Russia's leader.

In Slawjansk herrscht Terror is an German article by a German Russian translator with ties to Slawjansk.



It talks about the terror spread by the speratist gunmen, some with criminal backgrounds like in Crimea, influenced by Moscow and it's crimes against civilians. A main target of it's criticism is the language used in main-stream German media which doesn't call the terrorists terrorists but pro-Russian activists.

Nothing new and surprising there. People were kidnapped, tortured and murdered by the former regime supported by Russia, people were kidnapped, tortured and sometimes murdered in Russian-controlled Crimea and people get kidnapped, tortured and murderd by terrorists supported by Russia in Eastern Ukraine. Almost business as usual.

We will see how which results this terrorist campaign waged by Putins minions will give in the long run.

Firn---IMF stated today as released by Interfax;

1. Russia is in a recession
2. capital outflow has hit the over 100B USD up in the last two weeks from 65B
3. GDP is estimated at right now .02% and sinking to potentially zero or lower if that is technically possible

Also notice not a single reverse sanction coming our of Moscow simply because they have not a single pressure point outside of US businesses doing business in the energy sectors---which Russia needs their actual help on so again no pressure points---so much for a superpower wantabe.

http://www.kyivpost.com/content/ukra...ts-345701.html

[JMA]

Don't listen to the spin, this the truth about Germany's policy towards Russian expansionism:

Ukraine crisis: Russia sanctions would hurt Germany's growth

The classified report, prepared by the European Commission and leaked to a local magazine, warns that the sanctions could slash forecast growth for the German economy this year by almost one per cent, moving the country closer to a downturn, with grim implications for a weak eurozone.

A downturn? Rather sell out a few million people than have that.

Funny how it always takes the potential of economic pain for a nation's true colours to be exposed for all to see.

[kaur]

German export to Russia.

Impact on Germany is real, but limited

The DIHK says some 6,000 German firms are currently active in Russia. For the big, DAX-listed blue chips, Russia is just one market of many, and so the impact of the conflict over Ukraine is limited.
"Our Russia business is important, and in recent years our sales there have been growing faster than in most other markets, but it's not overwhelmingly big yet," says Tobias Baumann, a German Chamber of Industry and Commerce (DIHK) expert on Russia. He notes that German exports to Russia account for only about 3 percent of Germany's total experts. A Russia mired in recession wouldn't have dramatic consequences for German business. Leading economic think tanks estimate a 3-4 percent economic downturn in Russia would result in a mere 0.3-percent dip in Germany's gross domestic product (GDP).

http://www.dw.de/subdued-business-pr...en-eu-2092-rdf

[Firn]

A long time ago I worte that the Russia economy and the Western political willpower are the central 'outside' elements in this current conflict which might go long. Obviously they are interwoven with many other aspects outside of Ukraine, such as the economic developments. Germany and Merkel play a key role in this conflict and the German economy is one most linked with Russia out of the big players.

After a couple of weeks I looked again at a live-blog, a sometimes pretty useful instrument, in this case from the Zeit

(10:15) Die Ukraine-Krise kostet die deutsche Wirtschaft viel Geld. Im ersten Quartal 2014 brachen die Exporte nach Russland gegen den allgemeinen Trend um 13 Prozent ein. Damit wurden nur noch Waren im Wert von rund 7,6 Milliarden Euro dorthin geliefert, wie aus Daten des Statistischen Bundesamtes hervorgeht. Die gesamten Exporte waren von Januar bis Maerz dagegen um 3,1 Prozent gestiegen.

Damit verschaerft sich der im vergangenen Jahr begonnene Abwaertstrend erheblich: 2013 waren die Ausfuhren nach Russland bereits um fnf Prozent auf 36 Milliarden Euro gefallen. berdurchschnittlich stark leiden derzeit die Maschinen- und Autobauer. Die Lieferungen von Maschinen fielen um 17 Prozent auf 1,9 Milliarden Euro, die von Fahrzeugen um 18 Prozent auf ebenfalls 1,9 Milliarden.

Neben der Verunsicherung von Unternehmen und Verbrauchern durch die Ukraine-Krise drfte der Kursverfall des Rubel dabei eine wichtige Rolle gespielt haben. Er war im Februar und Mrz auf ein Rekordtief gefallen, nachdem Anleger massenhaft Geld aus dem Schwellenland abgezogen hatten. Das macht deutsche Waren teurer.

Noch staerker brachen die Exporte in die Ukraine ein, wenn auch auf deutlich niedrigerem Niveau. Sie gingen in den ersten drei Monaten um rund 26 Prozent auf 967 Millionen Euro zurck. Auch die Whrung Hrywnia war auf Tiefstnde gefallen.

The German exports to Russia fell 13% in Q1, after a 5% reduction in the same timeframe in 2013. The weakness of the Ruble does in my opinion explain most of it, which in turn was caused by Putin's aggression. There is no doubt that the Russian economy is suffering increasingly from many problems outlined before.

Despite much of the media reporting and high amount of trading compared to the other large EU countries Russia is for Germany,compared to the EU, the US or China a small market and economy. This is reflected by the overall rise in export by 3% despite Russia's troubles.