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Russias 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. Russias 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 Russias 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, Sept. 19


SPIBAs newest addition to their Cultural Discoveries events is Handmade in Germany, an exhibition featuring unique handmade objects of a significantly higher quality than mass-produced items. The work of over 100 German manufacturers will be displayed during the event, which opens today in the Lutheran Church of Saint Peter and Paul on Nevsky Prospekt and runs through Sept. 28.



Saturday, Sept. 20


Starting on Sept. 18 and ending tomorrow is the Extreme Fantasy Wakeboarding Festival in Sunpark by Sredny Suzdalskoye lake in the Ozerki region of the city.


Those after something more laid back can instead head to Jazz and Wine night at TerraVino with legendary jazz guitarist Ildar Kazahanov. 12/14 Admiralteyskaya Emb.



Sunday, Sept. 21


Learn more about African culture and get some exercise during todays Djembe and Vuvuzela, a bike ride starting in Palace Square that includes several stops where riders can listen to the music of Africa or watch short films about the continent. The riders plan to set off at 4 p.m. and all you need to join is a set of wheels.



Monday, Sept. 22


Do you love puppetry? If so, then be sure to go to BTK-Fest, a five-day festival that starts on Sept. 19 celebrating the art. Contemporaries from France, Belgium, the U.K. and other countries will join Russian artists to put on theatrical performances involving a variety of themes, materials and eras. Workshops and meetings are also scheduled for a chance to discuss the artistic medium in further depth.



Tuesday, Sept. 23


Marina Suhih, Director of the External Communications Department at Rostelecom North-West, and Yana Donskaya, HR Director for Northern Capital Gateway are just some of the confirmed participants of todays round table discussion on Interaction with Trade Unions being hosted by SPIBA. Confirm your attendance with SPIBA by Sept. 22.


Kino Expo 2014, an international film industry convention, will be at LenExpo from today until Sept. 26. The third largest exhibition of film equipment in the world, the expo focuses on not only Russia but former Soviet republics as well.



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