The Central Bank has warned about the unsustainability of growth of the Russian economy


In July, the Central Bank recorded a fall in retail turnover by 5%, follows from the review of “Economics: facts, ratings, comments. Total for the second quarter of 2016, according to the regulator, the fall in retail trade was 5.6% compared to the same period in 2015.

The decline in sales due to the lack of demand for consumer goods and services, explains the regulator. According to the Bank of Russia until the end of 2016, the drop in consumer demand will continue to slow. “In 2017 it is expected a recovery in consumer activity,” says the review.

The Central Bank notes the precarious nature of the economic recovery. In the second quarter GDP declined by 0.6%, which was worse than previous forecasts. Earlier, the Central Bank predicted a decline in GDP of 0,2-0,5%. The discrepancy between the actual and forecasted values of GDP, the Central Bank explained the decline in exports.

“The July industrial production data was slightly worse than expected, the Bank of Russia. This suggests that to draw conclusions about sustainable improvement in the industry yet”, — said the Director of monetary policy Department, Bank of Russia Igor Dmitriev.

At the same time, he stressed that to speak of significant deterioration is not necessary. “While positive and negative growth in the industry alternate from month to month, that is, the dynamics is unstable. The situation in the different industries is very heterogeneous. For example, in July again, increased production of investment goods in monthly terms. On the other hand, production of consumer goods fell slightly,” — said Dmitriev.

Record harvest

However, the Central Bank noted positive trends in the economy: industrial production in the second quarter increased by 1%, agricultural production rose by 2.5%. Industrial recovery was due to the release of high-tech industries (household appliances, machine tools, medical equipment). However, according to the Central Bank, these industries will not be able to ensure sustainable economic recovery, since their share in the structure industry is small. In July, industrial production decreased by 0.3%.

The dynamics of production in agriculture was supported by the grain harvest. According to forecasts, in 2016 it will be the record: not less than 110 million tons. This is the only favorable factor that, as noted in the review of the Central Bank, can have a positive impact on the dynamics of output of goods and services. Obstacle to economic growth, according to the regulator, is the low investment activity. The decline in investment in fixed capital in the second quarter were also above expectations. The Central Bank forecast a decline of 3,2-3,4%, whereas in reality it fell by 4%. According to Bank of Russia estimates, the reduction in capital investment will slow down until the end of the year, however, investment activity in the short term, will constrain moderately stringent conditions of lending to corporate borrowers, as well as the conservative investment policies of companies.

All of these factors, the Bank of Russia promises to take into account when updating its economic forecast for 2016, which plans to publish in September. “While we do not see sufficient reason to revise the GDP forecast for 2016, but the details of this issue will be considered when updating the forecast to the decision on the key rate and the publication of the report on monetary policy on 16 September,” — said Dmitriev.

According to a June report on monetary policy, the pace of decline in GDP in 2016 was estimated by the Bank of Russia of 0.3-0.7 percent.

The Bank’s assessment is at odds with the opinion of the head of Sberbank German Gref, which had previously seen signs of stabilization in the Russian economy. “Despite the negative growth of the Russian economy in the first half of 2016, we see some signs of stabilization in the face of rising oil prices and the strengthening of the ruble, which allows to predict a positive GDP dynamics in the second half of 2016,” — said Gref.

The Minister of economic development Alexei Ulyukayev said earlier that with the removed seasonality, Russia’s GDP in July showed zero dynamics. While the speaker admitted that in August, a slight growth of the economy.

The “price surprise”

Deputy Director of the Center for development HSE Valery Mironov sees no signs of improvement in the economic situation in Russia, he writes in the review of the HSE Comments about the state and business”, released on Thursday. But in theory, perhaps a temporary improvement as a result of the so-called “price surprise” that the HSE observed in recent months. Businesses that do not have a special research Department and do not study market, may perceive normal inflation as prices increase it for their products, explained Mironov. Because of this “price illusion” they boost production that can result in short-term growth of the industry and the economy as a whole. But then the companies realize that the price increase applies to the whole market, not just for them, and again reduce the issue.

However, this is only a theory, but in practice in Russia, this effect was not observed. Since 2009, producer prices in industry increased 2.1 times, but the company did not increase the release, as “perceive any price increase as a General economic phenomenon.” The Russian economy is “stuck at the bottom”, and a recession or stagnation is likely to continue, adds the same review of the HSE, leading expert of the development Center Nikolay Kondrashov.

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