The Lastest Macroeconomic News

13.12.2013 20:06 IMF says Russian economy at risk from oil markets

The International Monetary Fund said there were risks to the health of the Russian economy because of its heavy reliance on the oil industry. Antonio Spilimbergo, an economist with the IMF, said he was concerned about the health of the Russian economy following a week-long visit to the country. In a statement following his visit, Spilimbergo said growth in the Russian economy had slowed down and vulnerabilities persist. Inflation remains in check, however, and the economy is moving at its full capacity despite a slowdown in the growth of the Russian gross domestic product. He said the budget was further influenced by the weak performance of sectors outside the oil industry. "Structural reforms should be a critical element of any plan to enhance Russia`s growth potential," Spilimbergo said.

10.12.2013 15:23 India GDP expands 4.8% in second quarter

India`s economic growth accelerated in the fiscal second quarter, spurred by higher output in both industry and agriculture and a rebound in exports, suggesting that the economy has bottomed out. Gross domestic product (GDP) expanded 4.8% in the three months ended 30 September, compared with 4.4% in the preceding quarter, data released by the government showed. Agriculture grew 4.6% compared with 2.7% in the first quarter. Electricity production increased 7.7% against 3.7% during the same period. But growth in community, social and personal services, indicative of government expenditure, slowed significantly to 4.2% from 9.4% in the June quarter. The finance ministry expects GDP to grow 5-5.5% in the fiscal year to next 31 March. The economy grew 5% in the last fiscal year, the slowest pace in a decade, as companies put investments on hold and consumers cut back on spending in the face of high borrowing costs. Delays in mandatory government approvals hurt company cash flows, stalling projects. Economic affairs secretary Arvind Mayaram said the third and fourth quarters will see a pickup in growth to help attain a growth rate of at least 5% in the full fiscal year.

09.12.2013 18:21 Brazil Economy Shrinks More Than Forecast on Investment Fall

Brazil`s economy shrank in the third quarter more than analysts forecast as above-target inflation, deteriorating fiscal accounts and rising interest rates sapped confidence and crimped investment. Brazil`s gross domestic product fell 0.5 percent in the July to September period from the previous three months, the biggest drop since the first quarter of 2009, the national statistics agency said today in Rio de Janeiro. The drop was larger than forecast from 38 economists surveyed by Bloomberg, whose median estimate was for a 0.3 percent drop, and follows a revised 1.8 percent gain in the second quarter. On an annualized basis, the third quarter decline was 1.9 percent. Investment in the third quarter dropped by 2.2 percent. The decline shows the government artificially stimulated the economy in the second quarter and the impact was not lasting, according to Luciano Rostagno, chief strategist at Banco Mizuho do Brasil SA. “The government expected that by giving stimulus to specific sectors, positive sentiment would spread out,” Rostagno said by phone from Sao Paulo. “You can clearly see that didn`t happen.” Growth in the world`s second-biggest emerging market will accelerate this year to 2.5 percent from a revised 1 percent last year, according to analysts surveyed by Bloomberg. That would be less than one-third China`s rate and about half of India`s. The analysts forecast a 2.4 percent expansion in 2014.

08.12.2013 12:52 The Return of Stagnation

In early November, the Russian government released its latest macroeconomic forecast. It could not have been an easy decision. Whereas President Vladimir Putin and his government campaigned in 2012 on a promise that the Russian economy would grow from 5 percent to 6 percent a year during his six-year term, the growth rate is now expected to average just 2.8 percent from 2013 to 2020. Economic Development Minister Alexei Ulyukayev explicitly acknowledged that achieving the targets set by Putin "will take longer." In some cases, that means much longer. Russia`s ruling elite understands very well that reforms are needed. The problem is that the reforms needed to achieve such growth - fighting corruption, protecting property rights, privatization and integration into the global economy - threaten the elite`s ability to hold on to power and extract rents. For those in power, a big piece of a shrinking pie is preferable to no piece of a growing one, which is what most of the current elite would receive under a fair legal system with clear rules and predictable enforcement. The growing realism of the government`s internal and public discourse is no small matter. It is finally leading, for example, to the much-needed discussion of budget cuts. What this and officials` new candor mean more broadly for Putin`s political future remains to be seen.

06.12.2013 18:59 Will the stagnating economy bring about much-needed structural reform?

Throughout the 2000s, the Kremlin funneled profits from oil and gas into the rest of the economy, largely through state-led investment projects and increases in wages and pensions. Consumption soared. Spare industrial capacity left over from the Soviet era meant that firms did not have to invest to produce more. They could simply unlock capacity that had been sitting unused. That model is now outdated. High prices for hydrocarbons will not solve this, because the economy has now “adapted” to expensive oil. Future growth will require investment in new technology as well as gains in efficiency and labour productivity. The trouble is that Russian businesses cannot compete on quality either, since they are not investing in technology and equipment. This is related to the uncertainty of the business climate and the attractiveness of imports thanks to the strong rouble. The lack of opportunities has led to capital flight. An underdeveloped financial system offers no efficient way to channel surplus savings to the small and medium-sized businesses that need them. Even without meaningful structural reform, Russia`s low government debt and high reserves mean that the state could buy itself a minimum level of social - and thus political - stability for some years to come. But it will be more vulnerable than ever to outside shocks. The oil price at which Russia can finance budgeted spending without borrowing has increased from just $34 a barrel in 2007 to above $100 for the years ahead. The hazard of stagnation is the “lost opportunity” to make the economy more robust. A large downward lurch would leave the Kremlin with less freedom to act than it has now. The good news for Russia is that Mr Putin does not need to spend a lot of money to make the financial system more efficient or the state`s role in the economy less heavy-handed; but the bad news is that he has to embrace “a new idea of how to structure the economy”.

04.12.2013 12:49 The Economy Ministry of Russia cut its 2013-2015 gross domestic product growth forecast

The Economy Ministry of Russia cut its 2013-2015 gross domestic product growth forecast after months of data pointing to stagnant corporate investment as well as declining growth in consumer demand. The revisions, a few weeks after Russia admitted for the first time that its economy would lag global growth over the next two decades, added ammunition to arguments that Russia needs a new growth model. "Stagnation will definitely continue, with moments of recovery," Economy Minister Alexei Ulyukayev said. Despite an average price of oil, Russia`s chief export, above $100 this year, Ulyukayev said GDP was likely to grow only by 1.4 percent, compared to an earlier forecast - itself reduced - of 1.8 percent. The new forecasts envisage growth inching up to 2.5 percent next year, and 2.8 percent in 2015: down from previous forecasts of 3 percent and 3.1 percent respectively. The ministry then expects growth to average 2.5 percent over the next two decades, very modest for an emerging market more used to growth rates above 6 percent in the previous decade.

02.12.2013 20:06 Russian government embraces cluster strategy

Fifty percent of the world`s economies are now using "cluster strategy" to achieve growth, and as Russia attempts to wean itself off its dependence on natural resources, it`s embracing the same this line of economic development, setting up various clusters across its vast territory. A cluster, or a group of related firms and economic institutions specializing in the same industry and located near one another, is believed to bring about synergies for small and mid-size businesses. And though the strategy has been taken up only recently, there are success stories in the oil-rich country. Some regions specialise in car manufacturing, some in pharmaceuticals, others in IT or aeronautics – many industries that are part of global trends are being developed in regional clusters across Russia. For example, there is a huge cluster in St Petersburg for light manufacturing, alcohol, and car manufacturing which is already proving very successful. They are pulling in more and more investment, because the infrastructure is there, the work force is there and everything is in place. Kaluga, a region not particularly rich in minerals in oil, or anything, has been very successful in creating business environment. Mordovia has become a centre of Russia’s lighting industry, with plants manufacturing lighting equipment working for the benefit of the entire country, along with lighting design companies and distributors. The volume of subsidies is more or less equal and amounts to two million pounds per cluster. All of them have different models of territorial organisation, as well as various ration of science-technological activity and manufacturing capabilities. Yet, all feature high growth of production volumes, R&D potential and educational facilities based within every cluster. Clusters are a relatively young initiative but there is hope they will bring about growth of Russia’s economy in long-term. Some of the clusters across Russia have gone beyond national boundaries and can boast international cooperation – with France, Germany, Belgium, the Netherlands – to name a few. So clusters help not only to attract foreign investors but also Russian companies to go abroad, as it is easier for a business to find overseas partners if it is part of a larger entity such as a cluster.

30.11.2013 14:58 Russian Investment Falls More Than Forecast as Joblessness Rises

Russian investment fell more than economists estimated and unemployment rose to a six-month high as rising incomes helped shield consumer demand in October. Fixed-capital investment shrank for a third month, falling 1.9 percent from a year earlier after a 1.6 percent drop in September, with the jobless rate growing to 5.5 percent, the Federal Statistics Service in Moscow said in an e-mailed statement. Economists forecast unemployment at 5.4 percent and saw a 1 percent contraction in investment, according to the median estimates in two Bloomberg surveys. Retail sales grew 3.5 percent from year earlier as real wages jumped 4.1 percent. Real disposable incomes surged 4.9 percent in October after a revised 0.8 percent decline in the previous month, topping the median estimate of seven economists in a Bloomberg survey was for a 2 percent increase. Growth in retail sales exceeded economist projections both on an annual and monthly basis. Gross domestic product grew less than estimated in the third quarter, expanding 1.2 percent from a year earlier, the same pace as in the previous three months.

29.11.2013 15:33 Russia`s Economy Ministry said that the ruble could depreciate further in 2013

Russia`s Economy Ministry said that the ruble could depreciate further in 2013, weakening the currency to levels not seen for more than four years. The slide has come despite high oil prices and the ongoing tax collection period, which would normally be expected to increase demand for the domestic currency as businesses pay off their dues to the state. Economy Minister Aleksei Ulyukayev admitted there was a small chance the ruble`s fall could gather pace, the Prime news agency reported. The ruble has this week risen 1.4 percent against the euro-dollar basket, the currency benchmark used by the Bank of Russia. Russia is moving toward a free-floating ruble as part of a shift in monetary policy priorities. The Bank of Russia has widened the corridor in which it sells or buys currency six times this month. Bank of Russia deputy chairman Ksenia Yudaeva said that the ruble`s decline has been caused by external factors. But some analysts have linked the fall to a growing lack of trust in Russia`s banking system. Meanwhile, former Finance Minister Alexei Kudrin said that for Russia`s current model of economic growth to work, oil prices need to grow by $20 to $30 annually. But no changes can be expected until the Russian government gets its act together. Alexei Kudrin said the current problems of Russia`s economy are a result of an economic model heavily dependent on oil revenues.

28.11.2013 20:23 Technology Expert Sees Fear of Failure Inhibiting Russian Innovation

Despite its extraordinary scientific capacity, a stated desire to be competitive and the availability of capital, it may take several generations before Russia`s investment in innovation will bear fruit, a report by MIT on the country`s role in global innovation shows. Russia has many of the necessary elements to take its place next to the U.S. and China as one of the great developers of global technologies, said Jason Pontin, editor-in-chief of MIT`s Technology Review, which conducted the research. But there are things that Russia is doing to encourage innovation that are really not best practice, he said in an interview. "I did not know how idiosyncratic Russia`s understanding of the innovation process was," Pontin said. "I admire Medvedev`s commitment to making Russia a technological center of the world. Russia does have the intellectual capacity to do it." But there is an important aspect of corporate governance here that puts Russian technology entrepreneurs at a disadvantage, he added.

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