FBK Economic Club Experts Summed Up Results of the Year in Russian Economy

On 17 December the meeting of the FBK Economic Club was held on the topic of “Russian economy: results and forecasts”. During the event Igor Nikolayev, FBK Institute of Strategic Analysis Director, presented his analytical report of “Anxieties of Russian Economy” and the invited experts analyzed the results of Y2013 and shared their vision of the prospects of Russian economy. 

In his speech Igor Nikolayev characterized the current status of the Russian economy as the movement from stagnation to a recession. He pointed out that the first wave of crisis that began in 2008-2009 was not over. “There is no wavelike falling today so we should not expect any fast rebound. The uncertainty and risks still persist; most of the activities do not inspire optimism. One should not expect any 3% economic growth next year”, the expert believes. According to his forecast in the foreseeable future the GDP dynamics will drop down to the minus of 1-2%. The inflation will be a little bit higher than today, though it will not exceed 10%. Investments to the fixed capital will be significantly cut down to 5-6% by the results of the year, and the dollar rate will make 36-37 roubles per dollar. Summarizing, Igor Nikolayev noted that Y2014 would be worse than Y2013, but better than Y2015. 

The majority of invited experts also pointed out the troubling situation with the Russian economy. 

In the opinion of Sergey Borisov, deputy chair of RF Government Commission for competition and small and medium enterprise development, that year was the worst for Russian businessmen. “Moods are extremely pessimistic. In the course of the year we have lost about a million of individual entrepreneurs. And the newly emerged amounted to 360 thousand only”, complained the expert. He also noted that during the crisis the big business cut down tax allocations by 5-6%. While small businesses, even given the simplified system, increased their allocations by 22%. “That might be the way out of the situation. But the entrepreneurship has not made the stem of economics – the hopes were set upon the barrel”, stated Sergey Borisov. 

As noted Eugene Gontmakher, deputy director of the Russian Academy of Sciences Institute of World Economy and International Relations, the year was critical for social policy, too. If earlier we used to speak about the increase or decrease of social costs, the economy of today ceases to generate the amount of income we used to get and there is no money available to support the current level. The knowing has already come but tough measures like budget sequester are being implemented in a covert way. “Redistribution is under way – they take it away from somebody and they give it to somebody. The optimization of capacities is in progress – hospitals, policlinics and schools are shut down under the pretext of their inefficiency. That leads to the reduction of quality and accessibility of such services. The same is true for the pension sphere but the maneuver is lengthier there. We are facing a sub-acute deterioration of the situation”, the expert believes. At the same time he noted that there were certain reserves available – three reserve sources as a last resort. These are the two funds (Reserve and National Wealth Funds), the natural monopolies’ expenses which might be reallocated to the regional support, and the de-offshorring – i.e. new obligations will be imposed on business and there will be a shift to progressive tax schedule. 

And Andrei Nechayev, President of Russian Finance Corporation Bank and Russia’s former minister of economy, will remember the expiring year as the year with continuously changing official forecasts for the Russia’s economy growth. “I observed similar things in 1992 and in 1998. Early in the year the GDP growth was estimated as 3.7%, then 2.8% appeared, and the Ministry of Economy stuck to it rather long understanding the unseemliness of the situation, then 2%. In October the figure was 1.8%, and a couple weeks ago Ulyukayev pronounced the sentence of 1.3%, which is questionably final,” reminded the expert and noted that the MOE forecast for the next year was 3% GDP growth. However, according to him, even such cautious optimism has no grounds; and given the low basis such figures can hardly be achieved. The investment demand will evidently be diminishing. Judging by the results of 9 months the withdrawal of capital amounted to $48 b, by the results of the year – there are estimates – it will make $70 b. There is a clearly downward tendency for the real income of the population. “Plus, the Central Bank has busied itself with struggling against crediting of the population. It increases the requirements to the banks’ capital to such an extent that no normal bank would be willing to credit anybody except Gazprom,“ added Andrei Nechayev. He also pointed out that Russia failed to become attractive for investments – trade balance was shrinking and could be red ink, which created devaluation prerequisites and inflation risks. 

It ensues from the above that the budget adopted just now is unfeasible. The directives of May should be revised, since they are not suitable under the current macroeconomic environment. 

In the opinion of Vladimir Nazarov, the Gaidar Institute for Economic Policy chief of laboratory, the economic growth will be around zero, the inflation will be within 5-6%, and the budget will be slightly in deficit – 0.5% GDP. But there are no positive expectations. “There will be no rapid growth of oil prices, they will rather go down. Why invest in the economy which is dangling around zero? A signal should be given that there is no threat for business, a wide-scale privatization should be launched,” recommends the expert. The internal demand may also be stimulated through the CB bank rate. A compromise solution should be taken with the rate intact, but no reserves should be wasted. The weakening of the rouble has not yet brought the acceleration of economic growth, and one should not wait for miracles. They will never happen without the institutional reforms.”