Summary
We have these statements from Russia’s officials: [1]“..The economy may show quite strong growth of between 3% and 4% percent in the fourth quarter ( 2009) from the previous three months…”, [2]"We expect the economy to grow by more than 2% in the fourth quarter 2009 …..as long as the price is $70-$80 (pb)…", and [3] “We doubt that Russia’s GDP will grow without a continuing rise in exports..”; while energy, including crude oil and natural gas make 73 percent of Russian exports in 2009.
Analysis
These statements were from Alexei Kudrin, the Russia’s Finance Minister, Deputy Economy Minister Andrei Klepach and Mrs. Natalie Orlova, Chief Economist of Alfa Bank respectively. Klepach’s statement continues: “….Gross domestic product grew 0.6 percent in the third quarter from the previous three months; the Economy Ministry said this week. The annual decline eased to 9.4 percent, according to the ministry…. That compares with a reported 10.9 percent record contraction in the second quarter (of 2009) ...“ Mrs. Orlova’s statement also goes on:”… Until the lack of investment is addressed, we believe there is a high risk that output will remain stagnant….”
As Russia oil production needs much more technology and, thus, investment ( than most of the Middle East oil producers who, one after the other, reporting in World Economic Outlook, at best, flat-rating economy in the fourth quarter of 2009 ) the problem of investment and local manufacturing base comes into focus. This problem was --- virtually the same day as Klepach’s “4% growth in fourth quarter 2009” wishful thinking --- addressed by Arkady Dvorkovich, top economic adviser to President Dmitry Medvedev. He said: “…foreign direct investment in Russia will fall at least 10 percent this year (i.e. 2009) from last year…”
The real difficulty facing Russia's macroeconomic managers is that after two years of shocking inflation domestic industry is in no position to compete with its overseas competitors while the ruble remains at its present rate, while any sharp devaluation will have a serious impact on the balance sheets of those who took advantage of cheaper interest rates available abroad to do their borrowing using forex loans.
While in the past, rising exports boosted sectors such as metals production, Russia posted annual declines last month (September 2009) in construction, capital investment, real disposable income and retail sales. The metals sector is close to reaching full capacity and may not expand further, according to existing data. At the same time, banks have continued to reduce the size of their loan books as they use their funds to repay emergency financing extended earlier by the central bank.
Thus, the ‘estimated’ 4% growth of Russia economy in the last quarter of 2009 is based on two factors. One highly speculative: "70$-80$ oil per barell price" and the other virtually impossible, to wit: "increase investment into oil sector technology".
And yes, all of this under ceteris paribus condition in the rest of the world, which gives the whole assumption an eerie framework.
And yes, all of this under ceteris paribus condition in the rest of the world, which gives the whole assumption an eerie framework.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
