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Russia’s Top Economist Needs to Face Reality

Published: October 24, 2008 (Issue # 1419)


On Friday, the government reported that growth in gross domestic product for September slowed to 0.4 percent. On Monday, however, Prime Minister Vladimir Putin claimed that Russia, Brazil, India and China “will remain the locomotive of the world economic growth for the next few years.”

On Sept. 3, I wrote in this column, “A sudden zero growth would not be surprising, and leaders like Putin are not prepared to face reality.” Now zero growth has already been achieved but Putin remains in denial, even though as prime minister he is the chief economist in the country.

In fact, Russia will be lucky if it faces nothing worse than stagnation. A substantial decline in GDP next year is an acute possibility. Do not believe all these forecasts that as recently as a month ago predicted 6 percent or 7 percent growth next year. Each forecast is lower than its predecessor. Let us instead discuss the forces at hand.

As elsewhere in the world, the Russian banking system has frozen up because of rising international interest rates and an elimination of trust. Central Bank Chairman Sergei Ignatyev said two weeks ago that he expected 50 to 70 banks to go under. Others fear more than 200 banks might collapse. That would keep the credit market frozen for quite some time and lead to a contraction of loans, regardless of what the Central Bank does.

The second blow has already hit real estate development, a sector that is particularly dependent on credit. Investment is still increasing, but the growth rate has declined to 8 percent from 24 percent during the same month a year ago in September. You can see for yourselves how many cranes are standing still at construction sites in Moscow, and most large real estate and construction companies are considered to be on the verge of bankruptcy. Their stock prices have fallen 82 percent this year. If construction is halved, that alone would reduce GDP next year by nearly 3 percent.

The third strike has hit commodity prices. Since their admittedly brief, sharp peak in July, both steel and oil prices have halved because of the sudden slowdown in the world economy. In addition, energy production is already stagnant, and export volumes are declining. Russia’s crude oil exports fell by 5.9 percent during the first eight months this year. Steel exports are set to plummet, as China has turned from a steel importer to a major exporter. Domestic demand will decline with construction. Commodities, which represent roughly a quarter of Russia’s GDP, cannot possibly expand next year. But they may contract somewhat, especially steel production and construction materials.

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ALL ABOUT TOWN

Friday, Oct. 24


SPIBA’s ongoing “Breakfast with the Director” series continues today, featuring Tomas Hajek, Managing Director of the Northwest Division at Danone Russia. Hajek will be discussing collaborations between businesses from different cultures. The meeting is at 9 a.m. at the Domina Prestige St. Petersburg hotel and all who wish to attend must confirm their participation by Oct. 23.


Get your gong on at “Sounds of the Universe,” a concert at the city planetarium this evening incorporating six different gongs to create relaxing songs that will transport you upwards into the stratosphere. Tickets are 700 rubles ($17).



Saturday, Oct. 25


AVA Expo, the eighth edition of the event revolving around all things pop culture, returns to Lenexpo this weekend. Geeks, nerds, dweebs and dorks will have their chance to talk science fiction and explore a variety of international pop culture. Tickets for the event can be purchased on their website at avaexpo.ru.



Sunday, Oct. 26


Zenit St. Petersburg returns home for the first time in nearly a month as they host Mordovia Saransk in a Russian Premier League game. Currently at the top of the league thanks to their undefeated start to the season, the northern club hopes to extend the gap between them and second-place CSKA Moscow and win the title for the first time in three years. Tickets are available at the stadium box office or on the club’s website.



Monday, Oct. 27


Today marks the end of the art exhibit “Neophobia” at the Erarta Museum. Artists Alexey Semichov and Andrei Kuzmin took a neo-modernist approach to represent the array of fears that are ever-present throughout our lives. Tickets are 200 rubles ($4.90).



Tuesday, Oct. 28


The Domina Prestige St. Petersburg hotel plays host to SPIBA’s Marketing and Communications Committee’s round table discussion on “Government Relations Practices in Russia” this morning. The discussion starts at 9:30 a.m. and participation must be confirmed by Oct. 24.



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