• EXPERT CONTRARY OPINION: Russian Embassy disputes Stratfor analysis

    Trade & Economic Counsellor Embassy of the Russian Federation


    NOWADAYS the dominant share of the global mass media and market analysts keep discussing the situation in the Russian economy awaiting to witness its collapse.

    Unfortunately The Manila Times didn’t guard itself from this destiny while reprinting the article “In Russia, economic recovery remains elusive” of the “Stratfor Global Intelligence” (“The Manila Times”, May 4, 2015).

    Indeed Russia is actually experiencing doldrums. Nevertheless I am appealing to you to avoid sharing one-sided view with your readership as it would have them believe so and may create false impression on the current state of affairs in Russia.

    Things related to the sanctions from the US, EU and number of the other countries together with unfavorable conditions for the major export commodities on the world markets did not put the Russian economy on a normal footing, but the critical stage has been passed rather quickly. Yet thanks to the instruments that the Government of the Russian Federation had prepared, such as forex reserves, the capital assets of the Central Bank, etc. we managed to mitigate the peak phase.

    Meanwhile, we are strongly influenced by the geopolitical factor the dynamic of which is hard to predict.

    If we talk of the positive side, in case of devaluation of ruble domestic manufacturers have reduced their expenses in foreign currency terms. They got an opportunity to win the competition with the imported goods. We see that the dynamics of import is about to reach a plateau. With regard to non-primary exports along with investment projects aimed at import substitution and supplemented by government support we are expecting considerable potential and impact. The weakening of national currency and definite sanctions strengthened the consumer demand for the domestic manufactures, especially agricultural and food commodities.

    There are important niches for the Russian manufacturers to occupy at the developing markets. There is an enormous potential in the field of heavy industry and petrochemical technologies, shipbuilding, aerospace & aircraft building. Russian research & design institutions (R&DI) still possess with the vast number of unique technologies exported previously to numerous global markets. Just for example Russian nuclear energy sector is heavy with USD multibillion orders by now. I refer not only to the construction of nuclear power plants, but also to supplying know-how, machinery, providing necessary technical cooperation together with ensuring safety and security. For instance, the international portfolio of “RosAtom,” Russia’s nuclear State Corporation, comprises USD 101,4 billion orders.

    In its ‘research work’ Stratfor GI is citing on a high dependency of the Russia’s energy industry from the exportation of the US and EU technologies which is banned due to US and EU sanctions policy. Likely you are not aware, but let me, as an expert previously engaged in this sector, notify that the Russian companies and R&DIs exported earlier the numerous oil refineries, natural gas equipment, nuclear power stations, generating facilities, etc. on a “turn key” basis across the globe. And Russia is still possessing with these R&DIs and manufacturing facilities and able to satisfy both local and foreign demand.

    Despite new challenges the Government is not about to curtail the welfare programs. On the contrary, the recent expansion of financing for pensions and World War II Veterans provision together with maternity allowance and higher education subsidies are authenticating enough capabilities of the Russian economy to cope with the hardships.

    In the meantime US and EU are not now the only pebble on the beach. Let me justify this statement with the recent deal (over USD 300 million worth) of the Russian OAO “Novatek Co.” and “AG&P”, Philippines for the manufacturing and installation of the basic processing equipment at one of the biggest natural gas projects `Yamal LNG’ which is designed, apart from the domestic needs, for LNG exportation to the Asia Pacific Region.

    And one more fact. The importation of the mineral fuel from Russia to the Philippines has been drastically increased in terms of value for the period January to February 2015 referring to the Russian customs statistics. The overall Russian shipments increased by 400%. Accordingly the total PHL-Russia trade raised by 150% on the ‘same period’ basis.

    Western economists are predicting stagnation in Russia in their forecasts for 2015. I am to note that they provided the similar predictions previous year. But according to the recent data published by the Federal State Statistics Service of the Russian Federation the major economic indicators slowed down, but not gained a negative trend.

    Industrial production index in February 2015 increased by 10,7%; retail trade turnover — 6%; foreign trade (USD basis) — almost 12%; commodities export (USD basis) — 6%; fixed capital investments —16,3%; agriculture production —42,6%; average monthly wages — 6% (nominal in rubles) and 5% (real). Unemployment decreased by almost 6%. Consumer price index increased by 1,2% only. Not too much to allegedly affirm that “inflation is also a major problem for Russia’s citizens”.

    Russian analysts do not foretell perfect economic indicators for Russia. However the economic growth according to our estimates will start recovering already from the second half of 2015.

    Leading Russian financiers officially reported that there is no need in overseas borrowings for economic upturn: ‘The monetary affairs in the country are in order. The banks possess with sufficient capital and are able to provide loans to ultimate borrowers.” It is about “ordinary Russians’ ability to take out loans and afford food”.

    For instance, the volume of the National foreign exchange reserves increased by USD 3 bn. for the recent week of April 2015 according to the Central Bank of Russia.

    And the estimate for the GDP for 2015 has positive trend today. The USD/Ruble rate stabilized since January 2015.

    The Federal Budget deficit may be fully replenished from the Reserve Fund account.

    All of us are living in the interdependent world. And the SGI’s fabricated `research’ is scarcely bringing me to get excited on the outlook on EU economy. Real GDP for 2014 has contracted in number of the European countries (France and Italy, the zone’s second- and third-largest economies, stagnated in the final quarter of 2014) and hardly picked up in the rest of them. Greece’s economic rehabilitation has the perspective to bring uneasiness to the euromarkets. And no tangible acceleration of growth is expected in the early quarters of 2015. The banks are still burdened with non-performing loans, export is growing at subdued rate, the contribution of foreign trade to growth turns negative. Fears are growing on the matter of deflation in the Euro zone. And these states are free from sanctions!

    But for Stratfor GI it extremely important to showcase how much Russia is affected by the US and EU sanctions targeting Russian economy, how ‘mineral fuels’ dependent economy’ suffers from the crude oil market conditions.

    I am confident the StratforGI efforts and Stratfor GI-like ‘economic studies’ will not reach their goal and the Russian economy will overcome the troubles sooner than the followers of Adam Smith are expected.

    Summarizing the mentioned above let me advance a proposition that the downturn for the Russian economy has not been approached despite the difficulties it is experiencing. For the recent two decades we have witnessed at least three economic slumps and, to my opinion, the challenging situation in the Russian economic is slightly exaggerated.

    Every coin has two sides. If sanctions last till 2017, the economy will adapt: Asian markets will open, imports will be substituted and internal borrowing options will be found, our exports will become more competitive, and the growth will renew.


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