24.05.09

The crisis keeps pounding the Russian economy. The GDP in the first quarter of this year has shrunk by 9.5 in real terms. Analysts say the collapse of big industries was the chief factor. Industrial production in April slumped by 17 percent - this is the worst parameter since 1994.

The government had not expected such a heavy fall until just recently. According to the forecast the Ministry of Economic Development came up with last January, Russia's GDP is to reduce by 2.2 percent over one year on the condition the price of the Urals crude blend averages 41 dollar per barrel. However, although in the first quarter of this year Urals crude cost more, 43 dollars per barrel, the GDP slumped far worse than it was predicted in January, says the daily Nezavisimaya Gazeta. And as the federal state statistics service Rosstat has said, against the fourth quarter of last year the slump in real terms has reached 22.3 percent.

Yet, some experts argue that the economy is past the lowest point and the industrial sector will develop an upturn soon. Among the foreign specialists there are far more such optimists than among their Russian counterparts.

In March, the output of cars reduced by 63 percent, and of trucks, by 70 percent. Production in the manufacturing industries was down by 25.1 percent as compared with April 2008 (in March the decline made up 20.8 percent). Industrial output in the mineral resources production remained at the March level of 11.8 percent, says the daily Kommersant. The frontal decline is continuing. The production of gas and steam turbines has joined in. Last month it was down by 60.1 percent and 90.1 percent respectively. In the meantime, it had been the power-engineering sector, entirely dependent on contracts with state-run monopolies, which demonstrated several-fold growth in the previous months, providing tangible support for the industry. The fall of building materials production continued.

Experts blame the steep fall on the inconsistency of anti-crisis measures.

"The state backed up the banking sector, which, according to our sources, did not experience any liquidity shortages at all," the daily Trud quotes the chief of the strategic analysis department at the FBK company, Igor Nikolayev, as saying. "With its anti-crisis work the government in fact created disincentives for the enterprises to take their own anti-crisis measures. All hoped for state support."

The government is now working on another version of the macroeconomic forecast for 2009-2011, which will make allowances for the alarming signals of the first quarter. According to the NEWSru.com website, the Ministry of Economic Development lowered the expected GDP growth rate for 2010-2012. Under the optimistic scenario the Russian economy in 2010 will go up by 0.5 percent against the originally expected 3.8 percent. Under the pessimistic scenario the economy in 2010 will go down by 0.9 percent. In 2011 the GDP will be up 3.4 percent according to the optimistic forecast against the originally expected 4 percent.

Investors have followed in the Economic Development Ministry's footsteps to reconsider their Russian economy development forecasts.

Goldman Sachs, one of the world's largest investment banks, has lowered its forecast of the Russian GDP's decline for 2009 from 5.5 percent to 7.5 percent.

As for the Russian GDP dynamics in 2010, Goldman Sachs analysts have left their forecast unchanged. As before, they expect a 3-percent growth next year.

On the whole, foreign experts, including those at the International Monetary Fund and the European Commission, are looking at the prospects of the Russian economy with more optimism, says the daily Vremya Novostei. For instance, IMF analysts expect the Russian GDP this year to fall by no more than 6 percent. European analysts are still more optimistic - they predict the Russian economy this year will fall by no more than 3.8 percent, and in 2010 it may even show 1.5-percent growth. The World Bank says the Russian economy this year will be down by 2009 percent.

Russian economists' forecasts remain varied. Some do not rule out a far deeper slump already this year, while others argue that a recovery should be expected in the near future.

Vedomosti quotes Valery Mironov, of the Development Center at the Higher School of Economics State University, as saying the slump is to worsen in May to 18-20 percent, but after that the long-expected stabilization will begin.

"According to our calculations, the Russian GDP this year will be down by 25 percent in real terms, and by about 40 percent in dollar terms," the president of the Neocon consultancy, Mikhail Khazin, has said. The government's underestimation of the crisis is likely to produce a situation in which the state reserves will be spent much faster than the authorities expect.

Troika Dialog's chief economist Yevgeny Gavrilenkov believes that the events may follow a far better trend. Possibly, the signs of stabilization and growth, observed in February and March, when the production decline in some sectors stabilized, will gain strength.

Most of the economists the daily Kommersant has polled still argue that the industry is struggling at the bottom, but a recovery is due soon.

"It's a stagnation with the minus sign, but not another tide of the fall," says Vladimir Salnikov, the chief expert at the Center of Macroeconomic Analysis and Short-Term Forecasting.

At the same time the head of the small and medium business organization Delovaya Rossiya (Business Russia), Boris Titov, claims that the current rate of production slump is in fact tantamount to economic collapse.

"It will inevitably entail a tide of massive layoffs, which will contribute to greater social tensions," he warns.

About Alinga Consulting Group

    Audit and Taxation     Legal     Accounting and Payroll

Questions? Ask Alinga's Experts!

Source: Itar-Tass