By Andrei Skvarsky.
Russia’s biggest lender Sberbank argues that, although the country’s economy appears to be grinding to a halt, the picture is “not too alarming” and growth of 3% or more is still possible this year.
The Economics Ministry late last month revised its GDP growth forecast for 2013 to 2.4% from 3.6%. This was one of three scenarios propounded by the ministry. The latter uses it as its baseline scenario and calls it “moderately optimistic”. The worst-case scenario, which the ministry terms “conservative”, puts growth at 1.7%, and the best-case, “accelerated” scenario at 3.2%. The 1.7% scenario is not very likely to materialise, according to Evgeny Gavrilenkov, chief economist at Sberbank CIB, the lender’s investment arm.
The main reason why he thinks growth of 3% or more is possible is a relatively optimistic forecast for grain production and hence faster overall economic growth in the third quarter, Gavrilenkov says in a research piece, mentioning that last year’s harvest was poor because of drought. Anticipated slower inflation would serve to bolster retail and real incomes and push the overnight rate down. If the oil price stayed moderate, the government would transfer less money to the State Reserve Fund and hence borrow less in the domestic market, which would be a stabilising factor for money markets.
Consequent lower costs of borrowing would support investment activity towards the year end, Gavrilenkov argues. All this would effectively mean the materialisation of the Economics Ministry’s best-case, “accelerated” scenario with its projected growth of 3.2%. The ministry’s baseline, “moderately optimistic” scenario puts growth at 2.4%. Sceptical of the government’s planned recovery measures, Gavrilenkov draws a comparison between the Economics Ministry, Central Bank and Finance Ministry and the swan, pike and crayfish in a famous Russian 19th-century fable who can’t move a loaded cart they are harnessed to because each is pulling in its own direction. However, Gavrilenkov says, “there is part of the Russian economy that expects little from the government [and] grows even when the government’s loaded cart is not moving anywhere”.
Gavrilenkov doesn’t think much of what was proposed at a conference last month where President Vladimir Putin and his economic team were pondering how to speed up the slowing growth. One proposed measure was to stick to the rule of limiting state expenditures and replenishing the State Reserve Fund by domestic borrowing. In the past the government’s domestic borrowing has made interest rates go up, “crowded out all other borrowers” and caused investment activity to decline, Gavrilenkov says.
Another proposed move was to unlock the National Wealth Fund to finance infrastructure bonds to be potentially issued by Russian Railways and/or other state-owned entities. However, such infrastructure projects would take time to evolve and any positive impact they may have would come “well beyond 2013”, Gavrilenkov says. Gavrilenkov also reiterated Sberbank’s point that there is no direct correlation between the global price of oil and Russia’s rate of economic growth. He pointed out the Economics Ministry’s downward revision of its economic growth forecast and simultaneous upward revision of its oil price projection for 2013 to $105 from $97 per barrel as concurrent with this view.
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