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High food prices and the decline of oil, the loss of millions of tourism — what are the risks of coronavirus

Высокие цены на еду и снижение на нефть, миллионные потери туризма — чем грозит коронавирус

Recently the leaders of major refineries in China announced the reduction of oil consumption. According to forecasts of Chinese experts, in the near future reduction can be 25% or 3.2 million barrels. Western media reported about the fall in oil prices. The risk of the coronavirus to the global economy noted by the Minister of foreign Affairs of the Russian Federation Sergey Lavrov. In his opinion, prolonged exposure to the virus will lead to the accumulation of surplus oil and keep it prices.

— China will reduce oil consumption at least by 20 percent, this means that the oil and gas market, where the already quite complex situation, will start adjusting prices down. For us, it will lead to losses, — explained the head of Finance and Economics Institute of modern development Nikita Maslennikov. — If the average oil price was about 63 $ with the small barrel. The forecast for this year 57-58 $. And this, of course, the loss of oil revenues, the reduction in revenues to the national welfare Fund.

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Moreover, the reduction in the consumption of hydrocarbons by China will impact on our geopolitics: the prices in Europe fuel is also likely to go down, and it will affect Russia’s relations with Belarus and Ukraine.

— Besides OPEC+ is recommended to consider the question of additional reduction of oil production. For us it is difficult choices: either to agree with OPEC and the high price in the 60-65 $ per barrel when production cuts that comfortable enough for our oil companies with regard to their revenue. Or disagree with the OPEC+ and go their own way. If you go on agreement, then the entire industry will be lower than last year, and this could lead to lower GDP by 0.1−0.2 percentage points.

We will remind, last year Russia’s GDP growth amounted to 1.3%.

Coronavirus not only the oil and gas sector

However, economists believe the reduction in the supply of oil and hydrocarbons in General — is not the main problem. China is our exporter for various types of raw materials.

— Exports to China have been built on raw materials, China has a huge dependence on our forests. We supply to China food — recalls the Director of the Center for market research HSE George Ostapkovich. — Of course, they will need less electricity, they are less likely to purchase from Russia of raw materials. And of course, it will hurt Russian business. Limited currency inflows, can cause problems with the national currency, with the Russian budget, which at the moment, 40% is due to the supply of raw materials. And even more if you consider the wood and grain.

At the same time, according to George Ostapkovich, the seriousness of the situation will depend on how to continue the epidemic.

The second point is Russia’s dependence on the supply of Chinese equipment. Russia buys China’s technological equipment, circuitry, microelectronics. And all on a permanent basis, signed long-term contracts. And although Russia also have their own equipment, but it is analog, not identical.

— People often do not understand the difference between analog and identical equipment — draws the attention of George Ostapkovich. — Just imagine: when you remove the teeth using special equipment. But in principle, tongs, or pliers, analog equipment, they also can be removed. That is, some equipment we have, but it is less productive than imported ones. And the need we have in many respects or not, or if it is more expensive.

Because understanding Russia’s dependence on Chinese equipment have emerged the terrible rumors. For example, that will shut down Russian servers that run on Chinese equipment. What exactly from-for failures in the Chinese technique was linked to the recent disruptions in Yandex and Mail.

How serious is the danger of coronavirus for the Russian economy

Moreover, in many respects the situation is affected by it is the panic, not the coronavirus:

— There is some influence of pharmaceutical groups: they too exaggerate the importance of the coronavirus. The flu epidemic was repeated several times, and then about them, people forgot, and now even on television, only one topic — coronavirus — draws attention the expert.

Another point, threat to China, and thus for Russia is that the country’s economy at the moment affects not only the coronavirus, and a combination of factors.

Is a coronavirus — time, a trade war with the United States — two (China is now the obvious concessions to the Americans on the procurement of goods) and three — a huge financial debt bubble. The government and corporate sectors have huge debts. And these three factors together can lead to the bifurcation point, although one of the coronavirus nothing bad would happen.

Empty shops and the loss of millions of tourism

And China, according to the economist, will remain in growth area: even if GDP grows by 6.1−6.2% in a year, then when you save the coronavirus within a few months, the growth rate could fall to 5% per year.

And the Far East, meanwhile, threaten to empty store shelves. The Eastern regions of Russia have faced a rise in prices of vegetables and fruits. As informs “the Russian newspaper”, in small grocery stores in the Russian Far East vanished tomatoes, cucumbers and peppers. In Vladivostok, pepper offers to buy at 416 rubles per kg, cucumber at 450 and tomatoes on 700-800 rubles.

And besides, Nikita Maslennikov recalls that reduced income from tourism losses amount to a minimum of $ 100 million, stops the supply to Russia and cheap labor force. And the consequences will be the stronger, longer remain an epidemic.

© 2020, paradox. All rights reserved.

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