Kazakhstan: Readying for a milder boom

Transcription

1 CIS MACRO OUTLOOK Russia: Let s play leapfrog Still pain in Ukraine Kazakhstan: Readying for a milder boom Sep 213 CONTACTS: Ivan Tchakarov, PhD Chief Economist Russia/CIS T: + 7 (495) x74 M: + 7 (915) E: itchakarov@rencap.com The emerging markets investment firm

2 3 Key Cyclical Messages: Russia will see modest growth upside in 2H13 and 214 Cyclical low reached in 2Q13 at 1.4% YoY GDP growth GDP growth to accelerate from 1.5% YoY in 1H13 to 3.% YoY in 2H13 GDP growth at 2.2% (2.3% consensus ) in 213 and 2.9% (3.% consensus) in 214 Inflation will moderate on lower food prices CPI peaked at 7.4% YoY in May 213 Effects will gradually dissipate later in the year, with eop CPI at 5.8% in 213 (6.6% in 212) New fiscal framework preserves prudency, but enhances structural weaknesses Headline deficits kept at below 1% of GDP by 216 Non-oil deficit to moderate to 7.8% of GDP in 216 from 13.9% in 29 (1.3% in 212) Expenditure to shift from education and health to military The emerging markets investment firm 1

3 3 Key Structural Messages: Russia to hit the middle income trap (MIT) in 213/214 Gerschenkron s advantages of backwardness fast slipping away Fast-growing economies slow tend top slow down at per-capita PPP-based GDP of $16 Russia to hit against this constraint in Q4 213/Q1214 The economics of the middle income trap has 3 political economy implications MIT type of growth ensures no messy political transformation MIT type of growth may, however, mean prolonged political and economic stasis This could be counteracted by pursuing a borrow-and-spend policy a-la Greece Which model of economic development should Russia pursue? Become like Canada/Australia Become like Norway/Saudi Arabia Become like China Become like Greece Reform The emerging markets investment firm 2

4 CYCLICAL PICTURE The emerging markets investment firm 3

5 Dec-2 Dec-3 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-2 Dec-3 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 SOFT PATCH Slowdown across the board Figure 1: Real economy Jul-13 Jun-13 YtD Industrial production, % YoY Fixed investment, % YoY Retail sales, % YoY Real wages, % YoY Real disposable income, % YoY Unemployment, % RenCap-NES leading indicator points to mild recovery over next 2 quarters (YoY and QoQ) 12% Actual GDP Our forecast 4% Actual GDP Our forecast 8% 4% 4Q13 2.1% 2% % 1.2%.8% % -4% -8% 1.4% 3Q13-2% -4% -6% -12% -8% The emerging markets investment firm 4

6 Jan-6 Jun-6 Nov-6 Apr-7 Sep-7 Feb-8 Jul-8 Dec-8 May-9 Oct-9 Mar-1 Aug-1 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 SOFT PATCH Industrial production is also softening, % YoY Industrial production Extraction Manufacturing Electricity -3 Jan-7 Dec-7 Nov-8 Oct-9 Sep-1 Aug-11 Jul-12 Jun as is investment, % YoY as is consumption, % YoY 2 Real disposable income Real wages Retail sales Jan-7 Dec-7 Nov-8 Oct-9 Sep-1 Aug-11 Jul-12 Jun-13 despite tight labor market, % YoY 73 Employed people, mn Unemployment (right), % Jan-7 Dec-7 Nov-8 Oct-9 Sep-1 Aug-11 Jul-12 Jun-13 The emerging markets investment firm 5

7 Jan-5 Jun-5 Nov-5 Apr-6 Sep-6 Feb-7 Jul-7 Dec-7 May-8 Oct-8 Mar-9 Aug-9 Jan-1 Jun-1 Nov-1 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Jan-1 May-1 Sep-1 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep SOFT PATCH Inflation has topped off, % YoY CPI Core CPI PPI (right) driven by food, % YoY Food Non-food Services -2 The emerging markets investment firm 6

8 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Feb-9 Apr-9 Jun-9 Aug-9 Oct-9 Dec-9 Feb-1 Apr-1 Jun-1 Aug-1 Oct-1 Dec-1 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug , 1, -1, SOFT PATCH Money supply is contained, % YoY Monetary base, % YoY Money supply (M2), % YoY Money multiplier (right) Jan-7 Dec-7 Nov-8 Oct-9 Sep-1 Aug-11 Jul-12 Jun-13 Liquidity is still tight, but improving RUBbn Banks current accounts, deposits and OBR holdings with CBR Banks liabilities to CBR Net banking system liquidity -3, Jan-8 Sep-8May-9 Jan-1 Sep-1May-11 Jan-12 Sep-12May FX interventions have resumed, $bn Rates are elevated, if moderating % MOSPRIME overnight RUONIA Index The emerging markets investment firm 7

9 STRUCTURAL PICTURE The emerging markets investment firm 8

10 US Czech Republic Poland Hungary Russia Turkey Kazakhstan Brazil South Africa China Ukraine India Czech Republic Hungary Poland Russia Kazakhstan Turkey China Brazil Ukraine South Africa India HITTING THE MIDDLE-INCOME TRAP 5, 4, 3, 2, 1, Russia is very close to the middle-income trap threshold... GDP per capita, PPP (constant 25 international $), $ Middle income trap threshold...and we estimate that it will hit it in Year when average income reaches around $16, in 25 prices The emerging markets investment firm 9

11 HITTING THE MIDDLE-INCOME TRAP GDP growth in the MIT will be modest, % YoY Middle income trap Avoiding the middle income trap Western economies lost steam in first half of 197s, Japan suffered a similar fate in at the same income levels, SK in 1995, Singapore and HK in early 198s, Taiwan in in late 199s US hit MIT in 1963, UK in 1981 CZ in 1997, Hungary in 24, Poland in 28, Russia in 213, KAZ in 216, Turkey in 217, China in 22, Brazil in 224, Ukraine in 229, SA in 235 and India in The emerging markets investment firm 1

12 HITTING THE MIDDLE-INCOME TRAP PPP-based per-capita GDP differs significantly across scenarios, % YoY PPP-based per-capita GDP levels grows much faster if MIT is averted, 25 US dollars Middle income trap Avoiding middle income trap Historical path Avoiding middle income trap Middle income trap Historical path The emerging markets investment firm 11

13 Saudi Arabia 199 Australia 1962 Canada 1965 Norway 1965 USA 1959 Russia Poland 27 Greece 1975 Mexico Turkey Brazil China* SA India BECOME LIKE CANADA AND AUSTRALIA? NOT WITH THIS PRIVATISATION POLICY Per capita in 21, unless otherwise stated, in 25 constant PPP dollars Share of state-owned enterprises (SOEs) among countries' top 1 firms (% of total), 211 data 16, 14, 12, SOE shares among countries' top ten firms (% of total) 1, 7 8, 6 6, 4, 2, The emerging markets investment firm 12

14 Qatar (-1) Kuwait (-7) Brunei (NF) Eq.Guinea (-5) Norway (1) UAE (-8) Oman (-8) Saudi Arabia (-1) Libya (-7) Azerbaijan (-7) Kazakhstan (-6) Angola (-2) Gabon (-3) Trinidad & Tob. (1) Congo, Rep. (-4) Venezuela (-3) Iraq (3) Russia (4) Algeria (2) Iran (-7) Canada (1) Turkmenistan (-9) Ecuador (5) Nigeria (4) Colombia (7) Chad (-2) Sudan (-2) Mexico (8) Malaysia (6) Yemen (-2) Syria (-7) Argentina (8) Bahrain (-8) Uzbekistan (-9) Egypt, Arab BECOME LIKE NORWAY OR SAUDI? NOT WITH LOW ENERGY PRODUCTION PER CAPITA Oil (lhs) and gas (rhs) production per capita, with Norway, Saudi Arabia, Canada and Russia highlighted (Polity IV scores in brackets) Oil production (bpd per capita *1) lhs Gas production (cubic metres per person) - rhs Left-hand scale capped at 4 Right-hand scale capped at 4, 4, 3,5 3, 2,5 2, 1,5 1, 5 The emerging markets investment firm 13

15 BECOME LIKE CHINA? NOT WITH RUSSIA S LOW SAVINGS Loans, deposits and the net position as % of GDP - China's deposit surplus vs Russia's deficit helps explain interest rate differentials Russia deposits/gdp Russian loans/gdp China deposits/gdp China loans/gdp Russia net position as % of GDP China net position as % of GDP -5 The emerging markets investment firm 14

16 Singapore Taiwan South Africa Korea Czech R. Poland China Chile Thailand Brazil Hungary Mexico Turkey Russia Peru Indonesia India BECOME LIKE GREECE? NOW WE ARE TALKING! Public debt in 212 as % of GDP (Greece in 198) Retails loans, % GDP, The emerging markets investment firm 15

17 BECOME LIKE GREECE? NOW WE ARE TALKING! 3,5 3, 2,5 2, 1,5 1, 5 Potential public debt scenarios, GDP and public debt ($bn on lhs, % of GDP rhs) GDP ($bn) - IMF base case Debt/GDP ($bn) - IMF base case Debt/GDP ($bn) - modest increase Debt/GDP ($bn) - aggressive increase Debt/GDP (%) - IMF base case, rhs Debt/GDP (%) - modest increase, rhs Debt/GDP (%) - aggressive increase, rhs Public debt ratios since 198 Brazil, Russia and Greece Greece Russia Brazil The emerging markets investment firm 16

18 Ease of Doing Business Rank (1 is best, 2 is worst) OR JUST IMPLEMENT REFORMS Ease of doing business ranking (213) vs ranking in Corruption Perceptions Index (212) by Transparency International 2 18 R² = Bhutan Brazil Nigeria Kenya Russia 1 China Turkey Poland Hungary SA Mexico CIS countries Kazakhstan 2 Armenia Georgia Corruption rank (1 is best, 2 is worst) The emerging markets investment firm 17

19 HOW CORRUPT IS RUSSIA? The emerging markets investment firm 18

20 HOW (UN)DEMOCRATIC IS RUSSIA? The emerging markets investment firm 19

21 WHAT DO RUSSIANS WANT? Roots of discontent What causes frustration or anxiety in your life? May 211, % Unreasonably high cost of living 67 Low quality of medical services 53 Widespread corruption among public servants 49 High level of crime 48 Influx of migrants 41 Deplorable state of education system 39 Moral decay of society 39 Weak protection of property 36 Limited career opportunities 35 State of pension system 35 Increasing intolerance in society 27 Absence of an independent judiciary 26 Growth of Russian nationalism, xenophobia 16 Authoritarian regime 15 Restriction Moscow of media City freedom inequality is high, but declining 14 fast Source: The Economist, Levada Centre, Novaya Gazeta Does Russia need democracy?, % of respondents Jun-5 Dec-6 Dec-7 Jun-8 Jun-9 Dec-9 Jun-1 Jul-11 Oct-11 Jul-12 Yes, Russia needs a democracy No, democratic government is not for Russia No answer Source: Levada Center What type of democracy does Russia need?, % of respondents Jun-5 Dec-6 Dec-7 Jun-8 Jun-9 Dec-9 Jun-1 Jul-11 Oct-11 Jul-12 Like in developed countries in Europe and America Like in the Soviet Union A special type, in accordance with Russian national traditions and peculiarities Russia does not need democracy No answer Source: Levada Center The emerging markets investment firm 2

22 South Africa Russia India Indonesia Brazil Colombia Hungary Turkey Thailand Poland China Mexico Korea South Africa India Indonesia Russia China Turkey Thailand Brazil Colombia Hungary Mexico Poland Korea Russia Poland Brazil Colombia Hungary Korea Thailand Mexico Turkey Indonesia China India South DEMOGRAPHIC REVIVAL? Female life expectancy in line with that of other EMs Life expectancy, females, years (21) The difference in male/female life expectancy is largest in Russia Female and male life expectancy difference, years Male life expectancy is less so Population peaked in Life expectancy, males, years (21) 1,2 1, Brazil Russia India China peak in 25 peak in 215 peak in 23 peak in 21 The emerging markets investment firm 21

23 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar- Mar-1 Mar-2 Mar-3 Mar-4 Mar-5 Mar-6 Mar-7 Mar-8 Mar-9 Mar-1 Mar-11 Mar DEMOGRAPHIC REVIVAL? Births are rising and deaths are falling Number of births per thousand persons, quarterly Number of deaths per thousand persons, quarterly improved economic conditions after the sovereign crisis related to government policies to encourage birth Deaths are correlated with alcohol consumpiton Number of deaths per thousand persons Liters of pure alchohol per capita (RHS) Life expectancy has been on the rise Gap btw births and deaths is closing Life Expectancy at Birth Govt target life expectancy by 218, % Number of births per thousand persons Number of deaths per thousand persons The emerging markets investment firm 22

24 Still pain in Ukraine Sep 213 CONTACTS: Ivan Tchakarov, PhD Chief Economist Russia/CIS T: + 7 (495) x74 M: + 7 (915) E: itchakarov@rencap.com The emerging markets investment firm

25 Mar-2 Nov-2 Jul-3 Mar-4 Nov-4 Jul-5 Mar-6 Nov-6 Jul-7 Mar-8 Nov-8 Jul-9 Mar-1 Nov-1 Jul-11 Mar-12 Nov-12 STILL PAIN IN UKRAINE 15 GDP falls for three consecutive quarters 1 Broad balance is still deep in negative territory,12mma, $bn 6 1 GDP, % YoY C/A FDI Broad balance (rhs) The emerging markets investment firm 24

26 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 STILL PAIN IN UKRAINE Deposits are still stable, UAHbn FX share of deposit are falling FX deposits UAH deposits The emerging markets investment firm 25

27 Kazakhstan: Readying for a milder boom Sep 213 CONTACTS: Ivan Tchakarov, PhD Chief Economist Russia/CIS T: + 7 (495) x74 M: + 7 (915) E: itchakarov@rencap.com The emerging markets investment firm

28 READYING FOR A MILDER BOOM Until 27, KAZ was booming like the Baltics, the US or periphery Europe, with double- or tripledigit bank lending and property price rises When bust came, KAZ banks defaulted on the bonds that fuelled that boom KAZ being the fastest-growing among MSCI Frontier Markets Total debt levels today are again very low and real estate market is returning to life, so that there is plenty of room for a milder re-run of the boom along with Energy production per capita enough to secure political stability Business friendly reforms have put KAZ into 49 th place globally according to WB Ease of Doing Business 212 rankings KAZ is not an imminent boom story, we think this is a country with good prospects for asset price growth However, rapid growth in credit and asset prices will only follow more success in cleaning up NPLs in the banking system, and when there is growth in deposits to fund further lending The emerging markets investment firm 27

29 Qatar (-1) Kuwait (-7) Brunei (NF) Eq.Guinea (-5) Norway (1) UAE (-8) Oman (-8) Saudi Arabia (-1) Libya (-7) Azerbaijan (-7) Kazakhstan (-6) Angola (-2) Gabon (-3) Trinidad & Tob. (1) Congo, Rep. (-4) Venezuela (-3) Iraq (3) Russia (4) Algeria (2) Iran (-7) Canada (1) Turkmenistan (-9) Ecuador (5) Nigeria (4) Colombia (7) Chad (-2) Sudan (-2) Mexico (8) Malaysia (6) Yemen (-2) Syria (-7) Argentina (8) Bahrain (-8) Uzbekistan (-9) Egypt, Arab Rep.(-3) READYING FOR A MILDER BOOM Oil (lhs) and gas (rhs) production per capita, with Norway, Saudi Arabia, Canada and Russia highlighted (Polity IV scores in brackets) 4 Oil production (bpd per capita *1) lhs Gas production (cubic metres per person) - rhs 4, Left-hand scale capped at 4 Right-hand scale capped at 4, 3,5 3, 2,5 2 2, 15 1,5 1 1, 5 5 The emerging markets investment firm 28