/ world today news/ The sharp decline of 10% of the Russian economy in the second quarter set it back ten years. Such statistics became the reason for pessimistic forecasts. To overcome the crisis, Russia will need twice as long as the rest of the world economy – at least four years, say experts from the British center EIU. However, Russian economists see obvious errors in the forecasts of Western analysts.
The decline in Russia’s GDP in the second quarter of 2020 is estimated at 9.5-10% annually, the Central Bank of the Russian Federation has estimated. The depth of the crisis turned out to be serious, Russian President Vladimir Putin admitted. According to him, in April, when non-working days were announced due to the coronavirus epidemic, Russia’s GDP decreased by 12%, in May – by 10.9%. All of this, the president added, hit people hard. “There are still difficulties in the labor market. Yes, of course, our unemployment has grown to a much lesser extent than in some other countries, but it has grown nonetheless,” Vladimir Putin said. He called the restoration of the employment level of the population in 2021 the main task of Russian economic policy.
Macroeconomist Mikhail Khazin is sounding the alarm: the drop in Russian GDP is almost the same as in 2010 after the devaluation, that is, ten years ago. According to him, a drop of 10% is a lot for any economy, including the Russian one. “Since there are industries that are practically not affected by it (for example, civil servants), for some industries the decline is 30-35%. This is a lot, because 40% is a crash, “says Hazin. According to him, small and medium-sized businesses in Russia have come close to such a collapse.
Russia, as a raw material country, is facing two blows at the same time – not only with the blockade due to the pandemic, but also with the collapse of the prices of energy resources. It therefore faces a longer recovery to pre-crisis levels, according to economists at the British research center Economist Intelligence Unit (EIU). To get out of this crisis, the Russian economy will need at least four years, they believe. South Africa and Japan can expect the same slow recovery. That’s twice as long as the two years it will take for the global economy to return to pre-crisis levels in 2022, EIU analysts say. The economies of most G7 countries will begin to recover in the third quarter of this year, they predict.
However, Russian economists do not agree with the British pessimistic forecasts regarding the Russian economy.
“The faster we fell deeply, the faster we will return to the pre-crisis level,” says Vladimir Nazarov, director of the Scientific Research Financial Institute (NIFI). “For such a long four-year exit, there must be a systemic sectoral or financial crisis that disrupts economic chains. Or something serious should happen in the world, for example, a full-scale trade war between the US and China or a massive downturn in the banking system. But luckily, we don’t see anything like that. And we can’t say we have bubbles to burst. This is definitely not about our economy. Therefore, it is not clear why it should take us four years to recover. In my opinion, our recovery will be faster,” explains the economist.
“The preconditions leading to a four-year recovery period are very sharp and unlikely to materialize,” agrees Dmitry Kulikov, deputy director of sovereign rating group ACRA.
No one disputes that the second quarter decline of 9.5-10% is quite significant. But this is fully explained by factors that will not last forever. These are the sharp blockade of the economy, the abnormal decline in Russian exports of energy resources, as well as the prices of oil and gas due to quarantine.
“In the third quarter, the situation is already significantly better and the economy will continue to recover in the future. The numbers for the year will be better: we expect a GDP decline in the region of 4%, a maximum of 5% by the end of this year. In the coming year, the economic recovery will continue. In 2021 or at the beginning of 2022, we will be able to catch up with the indicators from the beginning of this year,” predicts Vladimir Nazarov.
Under the baseline scenario, ACRA’s Dmitry Kulikov says, Russian GDP will recover to pre-crisis levels in mid- to late 2021. Although annual GDP next year will still be below pre-crisis levels, he said.
Operational data from the Bank of Russia suggest that most industries are recovering relatively briskly. Analysis of cash inflows from industry showed that during the peak of quarantine restrictions, economic activity was 20% weaker than the average normal period. But already at the beginning of July, this figure dropped to 5%, Kulikov points out. In other words, economic activity has already improved four times since the quarantine.
“Gradually, Russia will return to the minimum possible unemployment, which was below 5% in our country. Now we have jumped to 10%, which is a lot for Russia, although by world standards this is not so much unemployment. But it is obvious that immediately after the lifting of the quarantine measures, employment slowly recovers”, adds Nazarov.
There is another factor that speaks in favor of the fact that the recovery of the Russian economy will be quite intensive, as in the whole world. It is the small share of small and medium-sized businesses in Russia that the quarantine hits in the first place.
“On the contrary, in Russia there is a large share of the corporate sector in the economy, and it will be easier for him to get out of the crisis, he will do it faster. It will be more difficult for those economies where, for example, tourism dominates. The share of tourism in our country is very small, so our economy has suffered less”, says Nazarov.
Finally, the Russian economy will be helped by a fairly rapid recovery in oil prices as demand for energy resources grows. Western economists, expecting a bad and long scenario for the recovery of the Russian economy, proceed precisely from the fact that Russia will hardly go through the second wave of the crisis and another oil crash. However, this is an unlikely scenario.
“As for oil, I think it could be $50 a barrel. That’s a pretty comfortable level for us. Because at these prices, American shale isn’t shrinking, but it isn’t growing much either. When oil is above $50, especially $60, America rapidly ramps up production. With the price of a barrel below 40 dollars, the Americans are starting to cut the oil shale. Therefore, the equilibrium will be reached when the price is around 40 plus,” says Nazarov.
Oil prices have already reached approximately this level, so it is now important that Russia increases oil production, but in such a way that there is no further collapse in the price of black gold. Most likely, Russia will restore production gradually – over the course of a year, the source said. As for the second wave of the pandemic, which markets and economists fear, Vladimir Nazarov does not believe in it.
“Where the quarantine was very strict and very few people were sick when activity resumed, the so-called second wave effect could begin. But in Moscow it is obvious that a significant number of people have already recovered, so there will not be a second wave here. This is proven by the example of Sweden, where there was no radical blocking. In the beginning, the incidence increased there, but now its level is already low. The situation is similar in Moscow, “says Nazarov.
In the regions of Russia, the situation is more complicated. “Some regions are now experiencing what Moscow experienced in April-May, and their peak will move towards the end of summer. But I see no reason for a second wave. In New York, which the virus affected first, nothing bad is happening now either, despite the unrest and people’s activity. Frequency is minimal. And now those states are sick, which were not sick before”, concludes the interlocutor.
Translation: V. Sergeev
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