The Russian economy (catch all)

[Firn]

Return of Russia's economic rollercoaster:

His son is a captain in the fire brigade. His salary was 60,000 rubles a month but he had told his father that the ministry in charge of the emergency services had just announced to its employees that their salaries would be slashed to 15,000 a month - around 190 euros.

In February the government announced its members would take a 10-percent cut from their 250,000 ruble a month pay packets, but this goes far beyond that.

"I'm so mad I just want to punch the minister in the face," the driver said, wondering how on earth his family would survive.

I guess the author means by 15,000 and not to 15,000. However the follow snippet tells an even worse story:

Tough times

On hearing this we rang a friend who works for the fire department, albeit at a lower rank. His story was worse. He hadn't been paid for December. He won't be paid in January and said he'd be lucky if he was paid in February - and if he is, it won't be at his usual rate.

Russian Cinema Attendance during New Year was down 30%, so the great wage decline of 2015 did take its toll also there.

There is also an interesting bit about the flight of capital, which was a big topic in this thread and with $150 billion a big flow in 2014:

A few months back staff at airports actively started asking if passengers were carrying cash out of the country since amounts above $10,000 must be declared. The last time they asked me, my reply was simple: "Unfortunately not," but the border guard said I'd be surprised how many people were carrying bags of cash in their hand luggage.

[Firn]

Two worthwhile updates by Mark Adomanis, including a neat chart:

Please note that all of the above concerns domestic, ruble-denominated debt. Foreign currency debt gets most of the attention in the press, there’s been a long series of articles about how the ruble’s collapse would lead to the bankruptcy and general ruin of the Russian corporate sector, but in absolute terms it is a relatively small part of the picture.

As of November 2015, even with the ruble’s nosedive past 70 per dollar, the total amount of delinquent foreign currency debt was about 17% the size of overdue ruble-denominated debt. That is to say that, by itself, the Russian construction sector now has more overdue loans than the overdue foreign currency debt of all Russian companies in all sectors. That, to put it mildly, is a problem.

A good update on the Russian construction sector

None of this means that “Russia is doomed” or that we’re on the precipice of a societal collapse. Housing is relatively modest as an overall share of Russian GDP, and “over-investment” in real estate has never approached the crazy scale seen in places like Spain or China. A housing bust would be painful, especially for developers, but it wouldn’t be fatal.

Nonetheless, housing was one of the few brights spots in the Russian economy. Continued high output in the construction sector helped prevent unemployment from heading even higher or the recession from being even deeper. During 2016, that is going to change.

Crude crashing below $30 per barrel, even if softened by the correlated ruble fall, is of course bad news for the Russian budget. I don't know where the oil price be in a couple of months or years but every month of such low prices hurts the Russian economy badly.

[Firn]

Two charts to keep in mind before going into the interview with the Russian Finance Minister:





So let us see the reaction of the Minister...

In short budget cuts are necessary to avoid a situation like back in '98 were the budget and balance sheet were not strong enough to stop the financial meltdown. According to DW some of cuts have already happened without much ado. Needless to say that any budget cut in this situation will have a negative impact on demand and the economy as a whole, especially in a country like Russia were the public sector and de-facto SCE make up much more of it compared to your typical Western country...

There is no doubt that the Minister hopes that ressources prices rally. Personally I guess that real prices will be higher in years to come, but every month this bear market lasts will inflict harm on the Russian budget and the Russian economy...

[Firn]

In short budget cuts are necessary to avoid a situation like back in '98 were the budget and balance sheet were not strong enough to stop the financial meltdown. According to DW some of cuts have already happened without much ado. Needless to say that any budget cut in this situation will have a negative impact on demand and the economy as a whole, especially in a country like Russia were the public sector and de-facto SCE make up much more of it compared to your typical Western country...

There is no doubt that the Minister hopes that resources prices rally. Personally I guess that real prices will be higher in years to come, but every month this bear market lasts will inflict harm on the Russian budget and the Russian economy...

Resources have indeed moved considerably higher* and are a huge help to support the economic policies of the government on which a large proportion of the economy rests.

Skilled actions by smart folk in important positions have been key to quell the flames of a financial crisis by usually choosing usually quickly the lesser evil. Still the Russian economy suffered heavy blows over the last years and is clearly relatively weaker then four years ago. The overall long term economic trends are also overall negative and relative positive development to a very negative one on a year-to-year comparison is still overall - well - a relative negative one...

Firn

Maybe I will do a short update with some proper facts in the coming weeks.

*I guess that in a couple of years the price of oil will be lower again. However I don't short out of principle...