For the Russian economy is now more dangerous not further fall in oil prices, but on the contrary strengthening them, wrote today Alfa-Bank. The paradoxical conclusion contained in the review of the Bank’s chief economist Natalia Orlova explains the “failure” of import substitution policies. The ruble in nominal terms weakened more than twice that logically had to lead to significant import substitution of consumption and GDP. In fact this has not happened is the share of imports in GDP remains at the level of 2011-2013 (21%), says Orlov.
Hence, the improvement in purchasing power, which will happen in the case of growth in oil prices and a corresponding appreciation of the ruble, is likely to lead to increased imports, and that other things being equal — a deduction from GDP.
This year we are expecting a current account surplus of 3.5% of GDP, according to a review of the Bank, but the Outlook is vulnerable to a potential increase of the rouble in response to the rise of oil prices. If the price of oil will recover to $80-90/bbl., the fair value of the Russian currency will be 45-50 rubles/$1, says Orlov.
The fact that the import substitution rather resulted in “much ADO about nothing” (under review name of Alfa-Bank), indicates the fact that the share of the agricultural sector in the economy hardly grew in comparison with pre-crisis years, while the share of imports in retail consumption fell to 35% from 43-44%, which is not as much as could be based on the drawdown of the ruble. It turns out that the nominal weakening of the rouble is 57% did not lead to a structural shift in the real sector, writes Orlov.
Weak sensitivity of the real sector to changes in the exchange rate can be explained by the rigidity of the production chain, follows from the review of Alfa-Bank. The results of the surveys conducted by the Gaidar Institute showed that almost 60% of manufacturers are not able to run the import substitution because there are no Russian analogues. And according to the world Bank, 70% of Russian companies use foreign raw materials and semi-finished products stated in the review.
The failure of import substitution results in a high risk economic stagnation, which casts doubt on the prospects of the state budget. Analysts “alpha Bank” believe that the Ministry of Finance will be difficult to avoid growth of social spending in the next two years. Social expenditures (pensions, social payments and salaries in the public sector) accounts for 21% of GDP, 40 million seniors, and 18 million civil servants, according to the review, and that the structure of GDP has not changed much in response to changes in macroeconomic conditions — fiscal policy for the bad news.