External Constraints Reshape Russia s Economy

Transcription

1 External Constraints Reshape Russia s Economy April 2009 Evgeny Gavrilenkov, Chief Economist Slide 1 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

2 Russia needs to find a more balanced path to growth Russia needs to moderate growth after a period of overheating. Not only high, but perpetually rising oil prices accompanied by soaring external borrowing led to overheating of the Russian economy. The country needs moderate growth in domestic demand, which had been artificially inflated by excessive external borrowing. The country has a chance of overcoming the crisis faster than many other countries Russia is not exhibiting a balance sheet recession. Endogenous factors should play a more important role once Russia resumes growth. On the back of a cheaper ruble, import substitution will once again help the economy recover in This will clearly not be on the same scale as in 1999, and nobody expects the same magnitude of devaluation. Growth would then become more internally driven the domestic market looks large enough to limit contraction, even if physical export volumes (and export prices) were to decline. Russia s economy was and still is able to grow fast amid low oil prices. However, this requires a weaker currency, and ideally a floating exchange rate. Strong devaluation expectations and the authorities slow reaction were to blame for killing growth, as money stopped circulating. As the global economy is no longer overheating, Russia must adjust to a new environment. The country desperately needs to bring inflation down, restore confidence in the ruble and get rid of the sort of currency board regime it has implicitly implemented since Money should become more endogenous and borrowing costs must decline. Slide 2 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

3 Nominal GDP correlates with oil price 2,000 2,000 1, , GDP, $ bln 1, , Source: State Statistics Service, Troika estimates Urals, $/bbl Slide 3 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

4 How Russia differs from other countries Eurozone Russia US M2, local currency, bln 8,075 11,991 8,280 M2, $ bln 10, ,280 M2 growth, % y-o-y CPI, 2008, % GDP, 2008, $ bln 14,100 1,670 14,200 Note: M2 numbers given as of February 1, Source: State Statistics Service, Bloomberg, Troika estimates Slide 4 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

5 The decline in economic activity was sudden 15% 10% 5% 0% -5% -10% -15% Jan 05 Apr 05 Jul 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Basic sectors output GDP Source: State Statistics Service Slide 5 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

6 and was accompanied by rapid demonetization of the economy 75% 60% 45% 30% 15% 0% -15% Monetary base M2 Source: Central Bank, Troika estimates Slide 6 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

7 M2 declined even in nominal terms, R bln 16,000 14,000 Decline in M2 means the contraction of credits R bln 12,000 10,000 8,000 6,000 4, Source: Central Bank Slide 7 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

8 Private foreign debt has been growing fast in recent years % $ bln % 20% % 0 10% 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 Private debt, incl. quasi-sovereign Public debt Private debt/gdp (rhs) Source: Central Bank Slide 8 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

9 Retail was booming due to foreign borrowing Acceleration due to borrowing Retail, Jan' 02 = 100% Foreign debt, $ bln (rhs) Source: State Statistics Service, Central Bank, Troika estimates Slide 9 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

10 as well as investment activity Overheating Investments, Jan'03 = 100% Foreign private debt, $ bln (rhs) Source: State Statistics Service, Central Bank, Troika estimates Slide 10 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

11 Current account will shrink, so that the ruble should follow a retreat of the oil price $ bln Exports Imports Current account balance Trade balance Source: Central Bank, Troika estimates Slide 11 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

12 Real exchange rate depreciated and helped imports contract, unlocking import substitution 160% 140% 120% 100% 80% 60% % Imports, $ bln RUB/USD (rhs) RUB/EUR (rhs) Effective ruble (rhs) Source: Central Bank, Troika estimates Slide 12 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

13 Positive current account should ease pressure on the ruble, as foreign debt repayments will be huge in 2009 Foreign debt service and redemption, $ bln 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 Debt payments Interest Redemption Public sector Interest Redemption Private sector Interest Redemption Banks Interest Redemption Non-banks Interest Redemption Source: Central Bank Slide 13 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

14 First signs of stabilization appeared in February Industrial output stabilizes in February-March. Industrial output was down 13.2% y-o-y in February, which is better than the performance in January, when output fell 16% y-o-y. Output was up 6.4% m-o-m. Industry usually demonstrates a recovery in February after the long holidays in January, but the m-o-m growth this year was the strongest observed since 2002, when the State Statistics Service introduced the current methodology of output calculation. In March industry contracted by 13.7% y- o-y, i.e. almost the same as in February Gross forex reserves remain relatively stable. The Central Bank has reported that its gross international reserves stood at around $ bln for several months. Minor fluctuations in reserves are mostly associated with valuation effects. The broad monetary base (cash rubles, voluntary and obligatory reserves) remained relatively stable in February-March and is likely to grow in April. This is a rather positive sign that marks stabilization in the financial sphere. Given that gross international reserves were also effectively unchanged, we can assume that the run on the ruble has moderated dramatically and the ruble has even appreciated in recent months. Overnight rates fell and remain stable after devaluation was over in the early February demand for money is now rising. Slide 14 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

15 Economic performance will depend on government policies more than ever before The role of the state (both the Central Bank and the budget) has substantially increased of late, becoming the major source of ruble liquidity, and growth is impossible without liquidity. However, too much liquidity could destabilize the situation on the forex market and stimulate inflation. This year, the state will have to seek a balance, which we believe is possible. Finance Ministry and Central Bank synchronize policy in February-April. Federal budget expenditures grew substantially in February, reaching R692 bln (compared with R396 bln in January). As a result, the budget ran a deficit of R244 bln ($6.8 bln), which was covered by previously accumulated cash in budget deposits (the Finance Ministry did not use reserve funds). In March expenditures were almost the same, while revenues grew up to R509 bln. That said the Finance Ministry kept injecting liquidity. This injection did not destabilize the situation on the forex market, as the Central Bank managed to sterilize the bulk of this sum, having substantially reduced the amount of repo crediting. The Finance Ministry and the Central Bank are expected to conduct synchronized monetary and budgetary policy, as they did in the early year. Slide 15 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

16 A sort of currency board: M2 follows the dynamics of gross international reserves, $ bln Gross international reserves M2 Source: Central Bank, Troika estimates Slide 16 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

17 Ruble has even appreciated recently Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 RUB/ USD-EUR1 Bottom for devaluation Source: Central Bank Slide 17 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

18 Ruble is stronger than ever: every dollar in M2 is backed by $1.09 in reserves R/ $ market rate R/ $ rate, calculated as M2/ Reserves Source: Central Bank, Troika estimates Slide 18 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

19 Budget will run a deficit in 2009 and become a source of liquidity for the system 30% 20% 10% 0% -10% Revenues Expenditures Balance Source: Finance Ministry, Troika estimates Slide 19 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

20 Budget will be the major source of liquidity in preliminary budget parameters, R trln Budget law Revenues 10.9 % of GDP 21.2% Expenditures 9.0 % of GDP 17.5% Surplus/deficit 1.9 % of GDP 3.7% Updated % % % Source: Finance Ministry Slide 20 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

21 Inflation (m-o-m) tends to accelerate when output growth slows and vice versa 3% 20.0% 2% 7.5% 1% -5.0% 0% -17.5% -1% -30.0% Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 CPI, m- o- m Basic sectors output, m- o- m ( rhs) Source: State Statistics Service Slide 21 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

22 Inflation remained stable in 1Q09 despite devaluation, y-o-y 35% 30% 25% 20% 15% 10% 5% 0% Food Non-food Services CPI Source: State Statistics Service Slide 22 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

23 Prices of investment goods have deflated 150% Jan 08=100% 130% 110% 90% Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 other non-metall goods metallurgy transport Source: State Statistics Service, Troika estimates Slide 23 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

24 Despite a soaring budget deficit, inflation may slow rapidly in 2009, y-o-y 72% 63% 54% 45% 36% 27% 18% 9% 0% -9% % 15% 14% 13% 12% 11% 10% 9% 8% 7% M2 growth CPI ( rhs) Source: Central Bank, State Statistics Service Slide 24 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

25 An upturn is impossible without re-monetizing the economy, y-o-y Source: Central Bank, State Statistics Service, Troika estimates Slide 25 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

26 Role of the Central Bank as lender of last resort grew in importance 32% 800% 24% 600% 16% 400% 8% 200% 0% 0% Repo operations, R bln (rhs) 1-day MIACR Repo rat e Source: Central Bank Slide 26 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

27 Repo and refinancing rates are becoming real benchmarks for money markets 25% 20% 15% 10% 5% 0% day MIACR Credit rate Deposit rate Refinancing rate Source: Central Bank Slide 27 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

28 Interest rates remain negative in real terms, but have again started to move toward positive territory 10% 5% 0% -5% -10% -15% day MIACR Deposit rate Credit rate Refinancing rate Source: Central Bank, State Statistics Service, Troika estimates Slide 28 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

29 Domestic liquidity is shrinking, but has already started to support the stock market, $ bln 1,800 1,800 1,200 1, MCap M2X (rhs) 0 Source: Central Bank, Troika estimates Slide 29 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

30 but may even increase in real terms 2,000 2,000 1, , GDP, $ bln 1, % 100% 120% 140% 160% 180% 200% 1, Source: State Statistics Service, Troika estimates Real GDP, 1999=100% Slide 30 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

31 Share of households with outstanding loans is declining Nov % Dec % Feb % 0% 5% 10% 15% 20% 25% 30% 35% Source: Levada-Center Slide 31 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist

32 Research Department +7 (495) Head of Research Paolo Zaniboni +7 (495) Strategy Chief Strategist Kingsmill Bond, CFA +44 (207) Strategist Andrey Kuznetsov +7 (495) Oil and Gas Senior Analyst Oleg Maximov +7 (495) Analyst Alex Fak +7 (495) Analyst Valery Nesterov +7 (495) Utilities Senior Analyst Alexander Kotikov +7 (495) Analyst Igor Vasilyev +7 (495) Telecoms, Media and IT Senior Analyst Evgeny Golossnoy +7 (495) Analyst Anna Lepetukhina +7 (495) Metals and Mining Senior Analyst Sergey Donskoy, CFA +7 (495) Senior Analyst Mikhail Stiskin +7 (495) Assistant Analyst Irina Lapshina +7 (495) Manufacturing Analyst Gennady Sukhanov, CFA +7 (495) Analyst Mikhail Ganelin +7 (495) Financials Senior Analyst Andrew Keeley +7 (495) Analyst Olga Veselova +7 (495) Consumer, Real Estate Senior Analyst Victoria Grankina +7 (495) Analyst Mikhail Krasnoperov +7 (495) Transport Analyst Kirill Kazanli +7 (495) Small and Mid Cap Analyst Gennady Sukhanov, CFA +7 (495) Analyst Mikhail Ganelin +7 (495) Market Analysis Assistant Analyst Nadezhda Utenkova +7 (495) Economy Senior Economist Anton Stroutchenevski +7 (495) Options Analyst Denis Agaponov, CFA +7 (495) Fixed Income Head of FI Research Alexander Kudrin +7 (495) Senior Analyst Anton Tabakh, CFA +7 (495) Senior Analyst Alexey Bulgakov +7 (495) Analyst Ekaterina Sidorova +7 (495) Ukraine Strategist Economist Senior Analyst Senior Analyst Senior Analyst Analyst Roman Zakharov Iryna Piontkivska Yevhen Hrebeniuk Peter Keller Alexander Martynenko Alexander Tsependa Kazakhstan Head of Research Emil Milushev +7 (727) Analyst Zaurbek Zhunisov Analyst Ainur Medeubayeva Chemicals Senior Analyst Mikhail Stiskin +7 (495) Slide 32 April 2009 External Constraints Reshape Russia s Economy Evgeny Gavrilenkov, Chief Economist