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Head: Smirnov, Sergey V., Akindinova, Natalia V.
Department: Centre of Development Institute
The target of this research is the important macroeconomic indicators of the global and Russian economies and their major sectors (real, banking, financial, fiscal and household), the monetary sector and foreign trade as well as financial and capital flows.
The objective is to study macroeconomic processes in the Russian economy, their interactions, their relationship to the world environment and the moves of Russia’s monetary authorities as well as an analysis and forecasting of key macroeconomic indicators for Russia.
The objective consisted of the following tasks:
Regular monitoring of macroeconomic processes in the Russian economy and its major sectors;
Determining the most important macroeconomic trends and breaking points in the Russian economy and its major sectors in the context of global economy;
Regular monitoring of the monetary, currency and fiscal policy of the Russian monetary authorities, evaluation of the macroeconomic consequences of proposed changes to the state economy policy;
Developing growth scenarios for the gobal and Russian economies in the short, medium and long term.
The originality of the work is determined by the specifics of how the Russian economy functioned during its first cyclical crisis, by studying the reaction of the Russian economy to external factors of efficiency of anti-crisis policy measures taken by the monetary authorities. The research also focuses on studying the reaction of the Russian economy to changes in the CBR currency rate and currency policy.
In terms of methodology, the originality of the work is determined by testing various possibilities of using different tools to forecast trend reversal points in economic development in general and in specific sectors, including the use of leading indicators of the business environment, designed particularly for Russia.
The research resulted from changes to the Russian economy structure amid the world financial crisis, including a breakdown into economic sectors. We have obtained short-term estimates of changes in the current economic environment based on the system of leading, coincident and lagging indicators for Russia; determined quantitative and qualitative scenarios of world and Russian economic development designed on the basis of macroeconomic modeling, options of Government and CBR policy; determined approaches to evaluating adequacy of multivariant macroeconomic forecasts; obtained analytical results from studying the forecast of socio-economic development in Russia, elaborated by experts from public and private organizations and independent experts; developed practical recommendations for measuring budget, tax, monetary, innovation, investment, customs, foreign trade policies as well as other forms and tools of economic policy.
Based on our studies, we have drawn the following conclusions.
The world economy is gradually recuperating, which in turn, is helping the Russian economy. The rising level of energy and metal prices as well as the unexpectedly rapid growth in export demand has stabilized the balance of payments and the currency rate. Oil & gas budget revenues have increased. The plunge in world food prices has lowered internal inflation, which has facilitated the CBR’s rate cut. The banking sector, which still tends to avoid Russian projects, is finding investment opportunities abroad, thus surviving these challenging times.
Wages and the employment rate in the private sector are still falling while the propensity to save is increasing (which is traditional for times when uncertainty is high). As a result, consumer demand is contracting, which is the key foundation for sustainable economic growth.
Despite a major fall, fixed capital investments haven’t bottomed out, since large companies have postponed new investment projects until better times, trying instead, to complete their existing ones. Now as these projects reach their final stages, the drop in investment activity will become more profound (as the lower benchmark, we take the small enterprise sector, where the fall in investment exceeds the average figure for the economy in general by 10-15%).
Government expenses have increased by about 5% of GDP YoY, which has become a key support factor in the Russian economy remaining afloat. However the price was high – public finances have become unbalanced. The problem is not the considerable federal budget deficit, financed by the reserve funds (after all, the safety cushion is meant to be savings for a rainy day), but more importantly, the crisis in regional budgets which hasn’t become fully apparent yet.
It is generally agreed that economic revival will be only modest. It might even look like stagnation. In this case, the growth in external demand may stop, and this would dramatically slow down the recovery of the Russian economy, as the internal factors are mostly negative. In the long run, there are two more important risks related to the global economy. One of them is attributed to the expected continuation of US dollar devaluation and, thus, substantial volatility of the world currency markets. Another stems from difficulties in winding down the stimulus programs carried out by central banks in major economies when fighting the crisis by using major financial injections into economies of their countries (if these funds are not withdrawn in time, inflation may start rolling).
The CBR’s monetary policy is also questionable. Currently, the CBR is cutting the key interest rates, easing its monetary policy. At the same time, the regulator continues with its tough regulation of liquidity injections into the banking sector, justifying their position by accusing banks of investing into FX assets rather than lending to the Russian real sector. The problem here is that previously, the CBR’s policy was market-like and consistent: the regulator used high interest rates that more or less reflected the existing risks to pull the funds out of FX instruments into rouble ones.
We also note that economic agents in Russia are trying to not book losses that they have incurred during the crisis, devaluation etc. However without this step, we can’t proceed to stable growth (in particular, because it distorts risk assessment). Therefore we are unlikely to see the rapid recovery of the Russian economy.
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