Alexey Vedev: Russian economy has adapted to new conditions


On November 25, 2015 Deputy Minister of Economic Development of the Russian Federation Alexey Vedev has addressed the Doors Open Day of the Russian-German Trade Chamber.

As he said, during the second half year of 2014 Russian economy has faced those that is called in literature "an ideal crisis", i.e. the three shocks at once. First of all, it was a price shock: oil prices has dropped almost twice. Secondly, it was geopolitical shock, i.e. the imposition of sanctions and counter-sanctions regime, as well as closure of international capital markets for Russian businesses and banks. Thirdly, it was the structural crisis, i.e. since the middle of 2012 the growth of Russian economy has ceased even in conditions of the high oil prices exceeding USD 100 per barrel. Growth rates, the real GDP and investments declined. As he added, "All these three shocks have resulted to the growing inflation, devaluation, and conditioned the negative growth pace".

Deputy Minster has compared the current situation with recession of 2009 when the sharp 18% drop of investments was recorded and GDP has dropped by 8%. As he stressed, "it was a typical V-shaped crisis which we have managed to exit sufficiently quickly". But this time the situation is completely different. First of all, the Central Bank has released Ruble and let it freely floating. As he stressed, "No doubt it was a chock, the strong price chock. But in result thereof, as you see, under the two-fold drop of oil prices the state of payment balance is currently better than in 2009".

Another one difference is that in 2009 such a notion as "margin call" was normal both for businesses and banks. Meanwhile currently there is practically no such problem as far as the short debt is rather small, and banks are positively in a position to serve their indebtedness.

Besides Alexey Vedev has said that in 2009 has been recorded a short period of the decline of real public salaries & wages whereas the real expendable income has increased. Now in many aspects the current crisis is the crisis of Russian middle class. As he informed, "This is a correction of salaries & wages; according to our estimates, they will drop in this year by 10%, and represent the correction of real expendable income. Evidently, one of the crisis factors is the extent of public bank indebtedness". Deputy Minister has stressed that as compared with USA with public bank indebtedness equal to 85% of GDP, the similar debt in Russia is only 16%. As he noted, "Nevertheless, the Russian debt is short and expensive".

Meanwhile Alexey Vedev reminded that in January 2015 Ministry of Economic Development of the Russian Federation has presented its first assessment of DDP that would drop by 3%.  As he said, "In principle it did not change". He added that Russian economy is adapting to new realities.

Situation with investment demand is still affected by negative tendencies; meanwhile some signs of the slowing down thereof have been recorded. Excluding the season factor, in October investments in principal capital has increased by 0.4%, whereas the annual rate of drawdown has accounted 5.2% vs. 5.6% is September; according to 10 month results the total investment decline was 5.7%. As Deputy Minister stressed, "We expect that the lower point of investment cycle shall be reached in 1st quarter 2016".

He has noted that now the economy has well adapted to new corridors of the currency exchange rate. In this year we expect inflation at the level 12.6 to 12.7%. He added that "in the next year we assess the December inflation at 6.4 to 6.9%".

Meanwhile Alexey Vedev has noted that owing to flexible exchange rate the payment balance would be positive. For the next 3 years it assessed at the level USD 58 to 62 mlrd; this medium term tendency shall be retained at least till 2018. As he said, the situation with servicing external debt and the capital outflow is improving as well. Moreover, "since 2010, it is the first time that in 3rd quarter 2015 we have recorded the net capital inflow".