Russian Society and the Economic Turning Point: opportunities missed, opportunities taken Mikhail Dmitriev President, Business partnership “New Economic Growth” Chatham House London, 13 April 2016
Foreign debt deleveraging: 2 times larger in 2015 than in 2009 Foreign debt, beginning of the year, bln USD Total Government CBR Banks Non-financial companies Source: Development Center of HSE, CBR 2
External debt redemption goes down, so do domestic investments Fixed investments Yoy (LHS) 3 month av. 3
Gross foreign debt redemption goes down but refinancing ratio for non-financial sector has been shrinking (~70% Q3 2014, ~ 50% Q4 2014, ~ 30% Q1 2015) 4
The recession impacted consumption stronger than the previous two % YoY Retail trade Real wage 43 months 21 month 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Fixed capital investment Retail trade GDP 5 Source: Institute of Economic Policy, Development Center of HSE
Corporate profits go up Corporate profits, real terms (%) Real wages (2012=100%) Total Industry Manufacturing Actual Seasonally adjusted 6 Source: Institute of Economic Forecasting of Russian Academy of Sciences
Food sales fell deeper than non-food Food consumption fell to the level of the beginning of 2008 Food and tobacco retail sales (2012=100%) Non-food retail sales (2012=100%) Actual Seasonally adjusted Actual Seasonally adjusted 7 Source: Institute of Economic Policy, Development Center of HSE
Poverty and inequality is on the rise Poverty and inequality increased Self-assessment of well-being by households Do not know Can afford everything (second house, car, etc) Can afford consumer durables (fridge, TV, furniture, but not car) Can afford food and clothing but not consumer durables Can afford food but not clothing Even food is a problem 8 Source: Institute of Economic Forecasting of Russian Academy of Sciences
Import substitution: industrial inputs Machinery and equipment Materials (average import substitution ratio - 17%) (average import substitution ratio - 57%) Food Food Textiles and clothing Machine-building Construction materials Textiles and clothing Machine-building Chemicals Steel Wood Wood Construction materials Non-ferrous metals Steel Chemicals Non-ferrous metals % Import reduction Import substitution ratio Source: IEP 9
Potential damage from the banking crisis was contained Household savings Loan to deposits ratio Non-cash savings FX purchase Consumption 10 Source: Institute of Economic Forecasting of Russian Academy of Sciences
Public debt is the smallest among large countries, fiscal deficit is checked, Inflation is already below the long-term average and continues to decline Fiscal deficit (-) in percent of GDP CPI CPI Federal budget Base inflation Regional and municipal budgets Poly. (base inflation) (plan) (fact) 11 Source: Institute of Economic Forecasting of Russian Academy of Sciences
Labor participation is at the onset of a prolonged downward trend driven by accelerated ageing Dependency ratio, % (rhs) Working age population, mln Labor participation, mln Employment, mln 12 Source: Institute of Economic Forecasting of Russian Academy of Sciences
Medium-term consensus forecast Real GDP growth CPI (Dec/Dec) Rub/USD annual av. Urals, USD/b annual av. 13 Source : Development Center of HSE.
GDP and wages may not recover until the next decade $35 p/bl $35 p/bl $50 p/bl $50 p/bl 14 Source : Development Center of HSE.
New drivers of growth: Non-tradables and quasi non-tradables Construction materials, steel, infrastructure Residential and Consumer and equipment, power commercial real estate, business generation, transport, infrastructure services logistics, development telecommmunications 15
A long “Laundry list”of potential reforms Regulatory reforms for infrastructure Retirement age increase Enhancement of territorial labor mobility Public sector restructuring Elimination of barriers in construction and development Urban planning modernization Reform of municipal finance Enhancement of commercial rental housing supply Long-term finance development Facilitation of exit an entry of companies M&A regulation and infrastructure and protection of minority shareholders Law enforcement reform Reform of judiciary 16
A radical breakthrough in Doing business rankings since 2012 Russia moved up by 70 positions - now well ahead of other BRICS and better than some of the OECD members 17 Source : the World Bank.
The key question remain ins unanswered: Wil ill th the win indow for economic reforms clo close wit ithout a ch chance to escape fr from a mid iddle in income tr trap? Pruchnik K. Middle Income Trap: What do we know about it, Who’s in it and why ? World Bank, 2014 18
Economic sentimens and approval ratings of V.Putin strongly correlate (su surveys of of Le Levad ada-Center) Война с Грузией Source : Daniel Treisman 19
Economic sentiments and a trust to V.Putin (VTSIOM survey) % Economic sentiments Trust to V.Putin 20 Source : JPMorgan on VTSIOM data.
Consumer sentiments have plummeted to historic minimums 21 Source : Rosstat
In 1990-2013 household consumption as a component of national accounts increased 2.5 times GDP, 1990 =100 GDP, 1998 =100 Gross fixed capital formation, 1990 =100 Gross fixed capital formation, 1998 =100 Household consumption, 1990 =100 Household consumption, 1998 =100 Source : Human development report – 2014. Analytical Center of the Government of Russia. 22
Top priority of current consumption Requests to V.Putin, April 2016 Rise the living standards and Income level, social protection and 33 41 resolve social problems pensions Improve the effectiveness of public 25 Econommic problems and inflation 21 management Stimulate economic growth and Corruption and resentment against the 16 12 employment authorities Address problems of culture, 5 Housing and utilities 11 science, health and education Address problems of housing and 2 Infrastructure and local problems 10 utilities Put an end to Chechen war 2 Education and science 6 Restore Russia's might 1 International issues 4 Personal wishes 1 Crime and terrorism 1 No answer, irrelevant answer 26 Other questions, no questions 28 0 5 10 15 20 25 30 35 0 5 10 15 20 25 30 35 40 45 23 Source : FOM, Levada-Center
Ongoing increase in utility prices 94 Bad solutions to the housing problem 81 Collapse of the economy and agriculture 75 Ever-lasting talk about anticorruption campaign w ith no real action taken 70 Seeking to retain their pow er in any w ay possible 67 Seeking to get every thing for themselves and their relatives, clan sy stem 66 Introduction of Unified State Examination 64 Inability to improve the enforcement of law and order in the country 62 Poor follow -up of decision implementation 62 A ctive only during elections 60 Seeking benefits only for themselves 58 Reduced number of government-paid university students 58 Disrespect for their ow n country law s 57 Transferring their money abroad 56 Inefficient social policy 53 2012: a short Improper police actions 53 Endarkenment of the people 52 A lienation from the people 51 lived shift to No care for the old people 49 Robbing the people 48 The fact that civil servants are better off than entrepreneurs 48 Uncertainty of the future 48 development Good at stealing and pay ing to remain in pow er 48 Beadledom 47 Enslaving terms of mortgage lending 46 agenda The fact that this policy is only beneficial for the rich 46 Demagogy , only slogans and promises 46 Longing to enj oy a better life than common people, caring for themselves only 45 The fact that Russia is given a raw -exports role in the w orld 43 Only good at promoting their ow n image 42 Inefficient economic policy 42 Creating life conditions that make people think how to let their flat in Russia 41 Ongoing inflation in the country that eats up pensions and w ages, and child benefits 40 onging to make a profit for themselves, and for this purpose making deals w ith any body 39 Ever-lasting lies 36 Inability to build a professional army , w eak army 35 Managerial incompetence – unprofessionalism 33 Irresponsibility , hollow promises 29 Do not know w hat needs to be done 28 The fact that democracy in the country is in danger as show n by the latest elections 22 Source: CSR Prow estern view s 22 24 Ignorance of the history and culture of their ow n people 21 Source: Center for Strategic Research Source: CSR Confused 15 Earthliness 13
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