Russia’s economy: wages are rising, GDP is falling


Экономика России: зарплаты растут, ВВП падает

The Ministry of economic development published its own assessment of the outcome of the development of the Russian economy for last year and said the Outlook for this year. Relatively good news: wages are rising. “The growth rate of real wages in October and, according to preliminary estimates, in November once again updated its maximum since the beginning of the recovery cycle (of 5.4% year-on-year in October-November)”, — stated in the review.

Growth in real wages occurs in the context of maintaining unemployment at low levels, a record of lower inflation and higher wages to certain categories of public sector employees in the fourth quarter of 2017.

According to Ministry estimates, the index of real wages will exceed the previous high of 2014 in January 2018.

The ruble when it was initially stable, but in the second half of the year, “emerged a trend of weakening”. In the end, the ruble weakened by 8.1%. But the course is “rid” the cost of oil, reminds the Ministry of economic development.

“What happened to reduce the dependence of the ruble exchange rate from oil price was the result of the implemented structural reforms in macroeconomic policy”, — reported the Ministry.

Return to the bottom?

The bad news is, the economy again showed a slowing trend. Recall that in 2016, was the economic decline of 0.2%. Last year, the economy began to recover, and experts, including Western, together reviewed their forecasts in the direction of acceleration. The optimists came in their projections to growth exceeding 2%.

The preserve of optimists is traditionally considered economic development, regardless of who it is headed. The previous head of the MAYOR Alexei Ulyukayev, when economic growth declined, periodically “feels bottom” and waited for the rebound. The current head Maxim Oreshkin continues the tradition of finding optimism where to discover it is not so easy.

31 Aug last year. had submitted the revised forecast of socio-economic development until 2020. He said that for 2017 is projected to rise to 2.1%, and in 2018-2020 — to 2.1-2.3%.

“Steady growth, which we talked about, continues-it started in the middle of 2016. This is already evident in terms of annual GDP growth. In II quarter GDP growth was 2.5%,” said Oreshkin. But then the mouth is exhausted — up to 1.5% in July. The Ministry of economy explained that temporary factors — bad spring weather. But the harvest will be good, and expressed the hope the Ministry of economy.

“In August-September we will see much more positive trend for production in agriculture, and this factor will start to play the other side in these months,” — said Oreshkin.

In the end, the grain harvest was not only not worse than in previous years as a record. But the game “the other side” did not happen. In the third quarter GDP, according to Rosstat, grew by only 1.6%.

The results of November-December last year, not impressive. In November, the Ministry of economic development of Russia, GDP fell by 0,3 % compared with the corresponding period of the previous year.

The main negative contribution to GDP has made the dynamics of industrial production (-1,2 p. p.). In November the decrease was primarily due to the “unexpected decline in the manufacturing industry (- 4.7% year to year)”. But in December there was a “normalization” of manufacturing activity, added the Ministry.

The growth of retail turnover in the last three months have stabilized at around 3% year-on-year. Indicators of investment activity also point to continued investment growth, said the Ministry.

In the end, the Ministry of economy was forced to lower the estimate of GDP for 2017. “Monthly and quarterly data of Rosstat indicate the growth rate at the end of 2017 at the level of 1.4% to 1.8%,” — said in the review, published 15 Jan.

Thus the final data may differ because of possible refinements retrospective data in connection with the receipt of additional information, warns the Ministry of economy. “A number of directly observable data (consumption of electricity, transportation by railway transport, air transport, car sales, results of surveys) indicate that growth last year could be higher”, — says the review.

Rising prices does not hold

The revised GDP forecast for the current year the review does not contain. The inflation situation is likely to deteriorate, and rising prices may devalue the growth of real wages, so hard go back to level 2014.

Consumer inflation by the end of 2017 has reached the historically lowest value of 2.5 % year-on-year (2016, inflation was at the level of 5.4%). But in December, consumer inflation started to grow “under the influence of rising prices for food and gasoline.” In January, the Ministry of economic development, inflation will be 0.4–0.5% mom and in annual terms — 2,3–2,5 % yoy.

It is unlikely that inflation will remain at a juncture, said mark real, leading analyst GK TeleTrade. “In the coming year it is expected the budgeted indexation of wages and pensions, “pre-election” payments and debt relief. Revenues in the end you get a little older. All this will increase inflation to 3.9-4%,” — he said.

The right reasons to hold and even more inflation is almost gone. Is that price growth will be constrained by lower incomes that fall for four consecutive years. A good harvest and a strengthening of the ruble has almost priced in by the market.

In addition, inflation is already “overshot” the level of 4% set by the Central Bank, and the regulator will not take significant effort to curb inflation.

Analysts of the Russian rating Agency ACRES believe that low inflation does not need any controller, nor business. “The transition to a sustainably low inflation will limit the ability of Russian companies to use traditional methods of cost management. 1% inflation a big business could be saving of 0.1–0.2% of unit costs due to the freezing of prices in contracts of contractors and the rates of wages,” the report says ACRES.

Most acutely on the regime of low inflation will react to those industries, prices in the markets which are linked to the General inflationary background (infrastructure monopolies and service sectors). Low inflation — the risk for non-financial creditors (energy, utilities): the practice of writing off bad non-payment will become more expensive.

In 2015 the growth of prices amounted to a record 12.9 per cent in 2014 to 11.4% in 2013 and 6.5% in 2012 and 6.6% in 2011 and 6.1%.

Growth in Russia is twice lower than the world

As for GDP growth, we should remember that in 2015 there was a decline in GDP of 2.8%, in 2016 — 0.2%. Now the growth of the economy “largely because of the statistical low base effect, said Goikhman.

The grounds for sustainable growth in the past year, and it is unlikely that they will appear in it. “The economy rebounded from the bottom mainly because of rising commodity prices. The price of Brent crude oil for December 2016 had increased by nearly half, while most of the year above $50 per barrel, which is quite comfortable for Russia. But structural, technological, and investment changes in the economy”, — said the expert.

Economic forecast for ACRE for the years 2018-2021 were slightly adjusted in October 2017, but did not affect the rate of GDP growth.

“Due to lower than we expected earlier, the rigidity of the labor market, the Russian economy is rapidly approaching the potential growth rate of 1.5% per year”, — said in a forecast submitted to the editorial Board.

In November, the European Bank for reconstruction and development (EBRD) has improved forecast for growth of Russia’s GDP in 2017 to 1.8% from 1.2%, and in 2018, the Russian economy, according to the Bank’s forecast, an increase of 1.7%. The experts of the EBRD noted that the investment activity in Russia is limited to economic uncertainty in General and some tensions in the financial sector.

“Without significant reforms, the long-term annual growth will not exceed 1-2% due to low investment, outdated production facilities, and certain internal structural factors such as weak demographics and an ageing infrastructure”, — reported in the macroeconomic forecast, which also stated that geopolitical tensions and extension of sanctions pose risks for the further development of the Russian economy.

The main risks for Russia, the Bank was also named the lack of supported investment reforms, business environment, geopolitical tensions and extension of sanctions.

According to IMF forecasts, world GDP will rise in 2017, 3.6% and 3.7% in 2018.




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