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A bleak future of the Russian economy: GDP decline, war and sanctions

Мрачное будущее российской экономики: падение ВВП, войны и санкции

As will feel the domestic economy and, accordingly, our purse in 2019? And in a year, two?.. To ask these questions is appropriate. First, until 2019, the remained two months. Secondly, it is now the Duma is considering a draft budget for the 2019-2021 years, specifying the parameters of the economic life of the country for the next three years. Of course, the exact answer to the questions no one knows. But to look to the future — in this case economic — there are predictions. They give and government agencies, and international financial institutions, and numerous research centers. What they promise us?

The forecast demand. And the individual, and the company and the state. And not just because “all humans”. No idea what happens, it is impossible to achieve the goal. To manage, as you know — means to foresee. But if we turn to Russian projections of economic development, primarily official, a new offer that they issued in the future.

Wheeler and Pristina

The forecast is an important part of the budget process. It is clear that the forecast should show what will happen with the economy, which is the nurse of the budget, i.e. the state. The budget process is directly adjacent monetary policy of the Central Bank, which, of course, forming a basis of the policy is also based on the forecast. It seems that everything is logical.

Harmony, however, quickly broken. First, the forecast actually under the budget written in the Ministry of economic development (MED), prediction under monetary policy — the Central Bank. And writing from the beginning, and does not complement its own specific character song MAYOR. It’s not just different departmental “gardens”, and the fact of saying that the forecasters, the MAYOR and the Central Bank and not think about how to create at least half the total document in which the future looks the same.

Here there is the first and very important “why?”. It all starts with your goals, and they have different projections. And it’s not just the difference in the tasks of the Federal budget and the Basics of monetary policy. It is important that by and large, the difference in the forecasts is the first indication that the MAYOR (and, hence, the government is the customer’s budget), nor the Central Bank is not too concerned to try to find out what really happens in the forecasted period. They are interested in something else: how much will the resources to achieve the goals, and they have the government and the Central Bank are different. The government — Wheeler in the implementation of the may presidential decree. The Central Bank this, if we continue the horse analogy, Pristina. The main objective of the Central Bank — taming of inflation. So look into the future. And different, as they say ophthalmologists sight.

In addition, no time for the President to sign the budget forecasts and the MAYOR, and the Central Bank “float”, will begin to change. On the one hand, that’s life. With all the power of digital technology element of the market is stronger, and “black swans” (events that are almost impossible to anticipate) always can suddenly fly. On the other hand, “the unbearable lightness” with which the forecast, unlike the budget is revised, poses specific challenges for its authors. For all permissible adjustments to the baseline forecast needs to be made so that constructed on its basis the budget or monetary policy has not been drained resources. Such specific tasks further alienate the forecast accuracy of the mapping of the future. Reserves arising from the forecasts, more expensive.

Meet our future

Future, derived from official forecasts, is very arbitrary, and yet to see him curious. Here is a portrait of the near future from the Ministry of economic development. In 2019, Russia’s GDP in the baseline forecast to grow 1.3%. Latest trend of constant edits — lowering. Until the summer, this figure was 1.9%, in September the forecast was listed as 1.4%.

A curious reason. The MAYOR lays them solitaire: first — the crisis in emerging markets. Example, Turkey recently faced with the massive outflow of capital, which is an alarming signal for other developing countries, including Russia. Turkey trigger capital flight became the US sanctions imposed after the seizure of an American preacher. For developing countries as a whole, including Turkey and Russia, the main risk of the policy rate hike by the Federal reserve, which exacerbates the debt problems of these countries, dampens investors ‘ interest to risk and perjorative capital in dollar-denominated assets.

In second place in the explanations of the Ministry of economic development the reasons for the lower forecast GDP for 2019 cost of a trade war. They are reality. And the main victims will be the countries with weak and open economy, and it is characteristic of Russia.

However, we note that both the first and second reasons relate to Russia in a number of other developing countries. Only the third is focused on our country: it sanctions and worsening. And the fourth reason for braking is taken directly from the Russian reality: increase from 1 January 2019 the VAT rate from 18% to 20%.

But then the MAYOR surprised. In 2020, the growth rate of GDP should be 2% and in 2021 exceeding 3% per annum. 2020 should be the champion of growth of investment is 7.6%, which is more than twice higher than the projections 2019 (3,1%).

There is reason to doubt that the normal increase investment in one and a half times the GDP growth over the previous year — that is, in 2020, investment growth should be at 3% instead of 7.6%. But if the investment actually will be lower, that miracles do not happen! — and reduced the GDP. But to write in the forecast growth rate below 3%, the MAYOR just can not — already for political reasons. It then begins to SAG executing one of the most important installations of the may decree is to provide growth above the world average. The MAYOR comes out, betting on the rapid promotion of national projects and associated investment in these projects by private companies.

There is another mystery. But what about the risks of emerging markets, trade war and new sanctions — all the things that the Ministerial predictors, will halt the growth of our economy in 2019? That their inhibitory effect is limited only by one year, does not look like. Yes, and VAT will rise for the year.

To questions answered by the forecasters of the Central Bank. The total in the baseline GDP growth forecasts from the MAYOR and the Central Bank — the downward corrections. In the last edition of the Central Bank’s forecast, GDP growth in Russia for the next three years 2019-2021 range from 1.2 to 1.7% per year on average. By the way, in 2018, the Central Bank expects growth of GDP in the fork from 1.5 to 2%. The Ministry agrees with the Central Bank that the rate of economic growth in the current year will be higher than in 2019 But no further. In 2020, we will remind, the forecast from the MAYOR of are 2%, and beyond 3%. The forecast of the Central Bank — a very different picture. According to calculations of analysts of the Central Bank, for the upcoming three-year Russian GDP growth will not exceed the modest number 2018, but more likely will be even lower.

From which it follows that the reasons for the deceleration of growth in 2019, according to the Central Bank, will remain in effect for the entire forecast period. And again, the Central Bank does not consider that the rate the MAYOR that the development of national projects can have a significant positive impact on macroeconomic dynamics, play.

And how may a decree? Forecasters from the Central Bank are limited to the hope that “in subsequent years (i.e. after 2021. — N. In.) may increase the rate of economic growth.” In the end, the task may set the decree on the presidential six-year-old.

Amendment to sanctions

The MAYOR and the Central Bank, of course, is not a monopoly in the market forecasts. They regularly produce almost all the major companies and banks, Russian and foreign. But with all the richness of choice important alternatives offered by the official forecasters of the future — a little. A notable exception is that the forecast of the Russian ratings Agency ACRE.

Forecasters ACRES committed in numbers to assess the impact of new sanctions that await our country, and they are composed of two “packages”: new sanctions under us law against proliferation of chemical weapons (in connection with the poisoning Skrobala) and the new sanction is only prepared to act. The most effective is the freezing of the assets of the largest Russian state-owned banks in the United States, a ban on the use of their payments in dollars, and a ban on investment in Russian government bonds. What are the main sanctions of the threat is such, has long been known, but quantitative estimates of their effects is still not there.

Whether they are in the forecast for ACRE? On the one hand, Yes. Prepared “a pessimistic scenario”, under which Russia, in 2019, is waiting for the GDP decline of 2.5%, inflation 8% and the dollar over 83 of the ruble.

On the other hand, in this scenario, the new sanctions are not the only “villains”, bearing the crisis in Russia. Shoulder to shoulder with them “worked” and such consequences of a trade war, as the onset of the recession in the US economy, the debt crisis in China and the fiscal crises in some European countries. And oil prices in this scenario are reduced to $40 per barrel. In principle, all this can happen, but this forecast — if a new round of anti-Russian sanctions will coincide with the new global economic crisis. The task of isolating the impact on the Russian economy actually sanctions this combination is heated.

There is a third party. Forecasters ACRE claim that the risk of extension of anti-Russian sanctions, they lay not only pessimistic, but in all scenarios your predictions. Then refer to the base as we did for scenarios predictions from the MAYOR and the Central Bank. On it in 2019 Russian GDP will grow by 1.4% (the upper limit of the forecast the MAYOR), and then to 2022 will range between 1.4–1.5% (the range of the Central Bank). And where is the impact of sanctions?

Hold a “pocket” wider

If the majority of forecasts, the pace of Russian economic growth is lower than the forecast of Ministry of economic development adopted by the government, then what about the resources that are necessary for your goals, where are they?

They are easy to detect. In the base forecast, the MAYOR of a barrel of oil in 2019 is worth $63,4 in 2020 — a total of $59.7 and $57,9 — 2021-m. now, recall that it costs about $80. What is not a reserve? But in parallel, the Ministry predicts the ruble to 63,2–63.9 rubles to the dollar, in 2019, 63,8 — in 2020 and 64,0 — 2021-m is Obtained, the next year oil is dramatically cheaper, and the ruble at the same rate grows stronger. Nonsense? How to say it! From the point of view of concealment of reserves — very efficient: if the dollar will give more roubles, rouble budget revenues paid by the oil exporters will be higher. Another “pocket” of the government. So its main task forecasters do.

To reinforce doubts in fidelity of the official forecast of oil prices, we present estimates do not oil (they are interested persons!), and financiers. For example, analysts “Finam” believe that in the second half of 2019 the price of oil “will return to the usual range of $75-80 per barrel”, and will be higher. A similar position and the OLE Hansen, head of Department of strategies on the commodity market, Saxo Bank: he believes that the next six months, oil prices can rise, and then go in the direction of $70-80 per barrel. In any case, the forecast prices are higher than in the Russian budget three-year plan.

But it must be so, if the main purpose of the official forecast — search for the truth, and reserves to achieve the goals, however, remain under question. This is the estimation of the Russian audit chamber. “Burying treasure” played with the official forecasters cruel joke. The audit chamber believe that inherent in the three-year drop in oil prices negates the possibility of solving this important problem of the may decree, as the transformation of Russia in the fifth economic power in GDP, calculated by purchasing power parity.

Created forecast “double bottom” officials fell into the same trap. As they say, for what struggled…

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