IEF RAS The QUARTER FORECAST 02.10.2008
Issue №11
RIM Group +7(495)1291744 QUMMIR model
RUSSIAN ACADEMY OF SCIENCE
INSTUTE FOR ECONOMIC FORECASTING
Forecast of Russian economy indicators[1]: 2008 – 2012
(base scenario)
The key annual indicators for Russian economy development in the concerned forecast period are given in the table below. This table quarter analogue is presented at the end of the bulletin. The more breakdown quarter tables are placed on our website in the electronic Appendix. One can also get here with the most detailed forecast results description.
MAIN FORECAST RESULTS2007 2008 2009 2010 2011 2012
GDP and ITS COMPONENTS DYNAMIC IN 2003 PRICES, %
GDP 8.1 7.0 6.3 6.3 6.0 6.4
Households consumption 12.8 13.7 12.4 9.9 9.7 9.1
Public consumption 4.7 4.3 4.1 3.5 2.9 2.9
Fixed capital investments 20.8 17.6 16.5 14.6 13.1 12.0
Export 6.5 7.4 9.2 9.1 9.7 10.5
Import 27.3 26.5 20.6 15.7 14.9 13.3
MACROINDICATORS IN CURRENT PRICES, trln. rub.
GDP 33.0 42.8 51.2 60.6 70.3 80.8
Gross profit 11.4 15.7 19.5 24.1 28.6 33.6
Earnings of employees (including latent) 15.2 18.7 21.8 25.3 29.3 33.5
Net taxes on production and import 6.1 8.3 9.7 10.9 12.2 13.5
Reserve Fund and National Wealth Fund 3.8 5.4 7.4 9.8 12.7 15.4
Exchange-value of rub/$. (under PPP) 19.2 24.7 25.2 27.6 28.4 30.1
GDP (under PPP, trln. $.) 1.876 1.886 2.083 2.303 2.547 2.783
GDP per capita (under PPP, ths.$.) 13.2 13.3 14.7 16.3 18.0 19.7
GDP per capita under PPP to the USA level,% 28.5 27.8 29.3 30.9 32.8 34.2
Calculated exchange-value of $, (rub/$) 25.6 24.8 24.2 25.4 25.7 26.0
DEFLATORS DYNAMICS, % for a year
GDP deflator 13.5 21.4 12.3 11.5 9.5 8.1
Households consumption deflator 8.9 13.0 11.0 8.7 7.4 6.0
Consumer price index 12.0 13.9 9.0 7.5 6.5 5.0
PUBLIC ACCOUNT PARAMETERS, trln. rub.
Budget revenues 12.6 16.2 19.6 23.2 26.8 30.5
Budget expenditures 10.8 14.5 16.0 19.9 23.1 25.2
Budget Surplus(+)/Deficit(-) 1.8 1.7 3.6 3.3 3.7 5.2
HOUSEHOLDS INCOMES AND EXPENDITURES, trln. rub.
Household incomes 21.2 27.4 33.3 38.9 45.3 52.1
Earnings of employees 8.5 11.1 13.4 15.5 18.0 20.5
Banking savings 1.3 1.7 1.9 2.2 2.6 3.0
Household credits 1.2 1.2 1.5 1.8 2.2 2.6
BALANCE of PAYMENTS, bln.$
Export 355 476 520 562 601 642
Import -223 -293 -361 -423 -491 -561
Net export 132 183 159 139 110 81
Net capital inflow 81 44 73 116 127 142
MONETARY SPHERE
Gold and foreign exchange reserves (bln.$) 482.3 640.3 796.7 973.1 1126.0 1260.4
Money supply, % 47.5 37.1 35.4 31.9 28.8 26.3
Money supply, % to GDP 40.2 42.5 48.2 53.6 59.5 65.4
Cash share in the money supply,% 27.9 25.4 24.6 23.7 22.7 21.7
Banking system assets, % to GDP 54.8 57.7 66.2 75.8 85.2 99.2
STOCK MARKET
The RTS index, p. 2208.4 1977.5 2255.7 2583.6 2912.7 3367.3
LABOR FORCE
Labor productivity, % 105.5 106.2 106.2 105.8 105.6 105.7
Employment, mln. people 70.6 71.1 71.1 71.4 71.6 72.0
Unemployment, mln. people 4.6 4.1 4.1 4.0 3.8 3.6
MAIN FORECAST RESULTS - STRUCTURE
2007 2008 2009 2010 2011 2012
GDP STRUCTURE BY SOURCES OF INCOME, %
Earnings of employees (including latent) 45.9 43.6 42.6 41.8 41.6 41.4
Gross profit and gross mixed income 34.7 36.6 38.1 39.8 40.7 41.6
Net taxes on production and export 18.6 19.5 19.0 18.1 17.3 16.7
MAIN FORECAST RESULTS - STRUCTURE
2007 2008 2009 2010 2011 2012
USE OF GDP, %
Households consumption 47.9 47.4 49.5 49.9 50.7 51.0
Public consumption 18.2 17.5 16.4 16.5 15.7 15.3
Fixed capital investments 21.1 21.7 23.3 24.7 26.1 27.3
Export 30.5 32.9 31.1 29.2 28.2 27.5
Import 21.8 21.7 22.0 21.6 21.5 21.3
PRODUCTION OF GDP, in CURRENT PRICES BY OKVED,%
Agriculture, hunting and forestry 4.1 3.8 3.7 3.6 3.5 3.4
Manufacturing 27.9 28.7 27.9 27.4 26.9 26.4
including:
Mining operation 8.9 9.7 8.8 8.0 7.2 6.6
Manufacturing activities 16.3 16.3 16.5 16.9 17.2 17.4
Construction 5.1 5.4 5.9 6.4 7.0 7.6
Trade 17.7 18.1 19.2 19.8 20.7 21.3
Transport and communication 8.1 7.7 8.2 8.3 8.3 8.3
Other communities 25.3 24.5 23.8 23.6 23.3 23.2
Net taxes on products 14.8 14.6 14.8 14.4 14.1 13.9
PUBLIC ACCOUNT PARAMETERS, % to GDP
Budget revenues 38.3 37.9 38.4 38.3 38.1 37.7
Including oil and gas revenues 0.0 9.9 9.4 8.6 7.8 7.0
Budget expenditures 32.7 33.8 31.4 32.8 32.9 31.2
Including national economy expenditures 8.1 6.8 6.4 6.7 6.7 6.3
Budget Surplus 5.6 4.0 7.0 5.5 5.2 6.5
HOUSEHOLDS INCOMES AND EXPENDITURES, % to GDP
Household incomes 64.3 63.8 65.1 64.2 64.4 64.4
Earnings of employees 39.9 40.7 40.1 39.9 39.7 39.4
Banking savings 6.3 6.1 5.8 5.7 5.7 5.8
Household credits 8.0 6.6 6.4 6.5 6.7 6.9
BALANCE of PAYMENTS, structure in %
Export, total 100.0 100.0 100.0 100.0 100.0 100.0
including:
Export of energy sector 61.5 66.3 65.7 63.6 61.7 59.5
Import, total 100.0 100.0 100.0 100.0 100.0 100.0
including:
Import of investment goods 29.9 31.1 31.6 32.1 32.3 32.3
Import of consumer goods 40.9 41.2 43.2 43.6 44.2 44.5
1
IEF RAS The QUARTER FORECAST 02.10.2008
Issue №11
RIM Group +7(495)1291744 QUMMIR model
1
IEF RAS The QUARTER FORECAST 02.10.2008
Issue №11
RIM Group +7(495)1291744 QUMMIR model
TABLE OF CONTENTS
The August-September of 2007 analytical summary
Base scenario correction
The main forecast results
Forecast and analytics calculation results of the main blocks in QUMMIR model
Price dynamics
Monetary sphere
Consumer incomes and household consumption
The tax and budget block
Investments
Foreign trade and balance of payment
Labor force and demography
Production of GDP
Stock market
The exchange-value of dollar
1
IEF RAS The QUARTER FORECAST 02.10.2008
Issue №11
RIM Group +7(495)1291744 QUMMIR model
The August-September of 2008 analytical summary
Events of August-September, 2008 have alarmed business community and population. The government also does not have common opinion about the events in the Russian economy. What happened in the Russian economy?
The society is most disturbing by perceives the situation in the currency and stock markets, change of consumer prices. As to the stock market its instability in the Russian conditions does not carry the character of the phenomenon influencing a macroeconomic situation. And the key factors influencing its capitalization still are behind the Russian borders. All it means that considerable intervention of the state in a situation on the stock market cannot in an essential measure affect key macroeconomic indicators. Much more important can be considered the problem on overcoming of crisis of liquidity in the bank sector. Possible direct state purchases on the share market cannot be considered as the correct decision. The situation in the currency market is in many respects defined by parity in steam dollar-euro, and some easing of a rouble exchange rate is necessary for perceiving more likely as the positive phenomenon. Inflation continues to remain in the centre of attention within last year. Its dynamics still represents a serious problem, but the choice of a correct policy on its reduction demands the careful analysis of a current economic situation.
Dynamics of key macroeconomic indicators in January-August, 2008 was not homogeneous. On the one hand, the gain of GDP by results of the first half of the year has made 8 %. On the other hand, dynamics of industrial production in June-July has shown essential delay.
In our opinion except it is necessary to note some important points. Firstly, it is possible to assume that an essential role the effect of base here has played. If to look at dynamics of industrial production in 2007 it was possible to note that in June-July of this year the greatest rate of a gain (9.6 % and 10.3 % accordingly) is fixed. On the contrary, in August and September, 2007 the least rates of a gain of industrial production (3.7 % and 2.9 % accordingly) were fixed. Thus, on industrial production delay it will be possible to give a real estimation of stability of the developed tendency by results of August-September of current year.
Preliminary results of August, 2008 (industrial production growth by 4.7 %) confirm our assumptions. In this connection our estimation of the bottom border of dynamics of industrial production during the current year cannot be more lower 5 %. Secondly, it is necessary to remember that economic growth of last two years was based on expansion investment and a consumer demand.
The analysis of current statistics shows that consumer demand continues to grow. The turn of retail trade grows by steady rates (in January-July, 2008 by 15.2 %). During this time the investment demand was slowed down rather essentially (the gain of fixed capital investments by the similar period of last year in June-July has fallen below a mark to 10 p.p.). Delay is observed and in construction closely connected with investments. Thus, the basic conclusion is that the basic threat of stability of economic growth in Russia at the moment represents decrease in investment activity.
Some influence on dynamics of investments was rendered by world financial crisis. But internal factors have appeared more significant. In our opinion, here it is necessary to recall the beginning of 2008. High rates of economic growth against considerable inflation have generated conversations on possible "overheat" of the Russian economy. The thesis about necessity of growth inhibition and decrease in inflation by monetary and credit policy toughening became popular. Rates of increase of monetary weight have been as a result considerably lowered. The lack of liquidity at bank system has led to toughening of credit conditions of the business. In the conditions of decrease in possibilities of loans abroad it has led to double hit by investment possibilities of economy.
Certain successes in the field of struggle against inflation have been reached. But these successes are not too considerable and, besides, absolutely unevidently that basically they became result of a spent monetary and credit policy. At the same time the consequence of decrease in investment activity in the summer of 2008 can have long character.
High indicators of growth of CPI negatively influence state of the economy. In mid - and long-term prospect it negatively affects economic growth. In the conditions of current economic development, apparently, it would be possible to be tried on with some decrease in rates of increase of a consumer demand (as it is closely connected with growth of streams of import), but decrease in rates of fixed capital accumulation is excessively high payment for decrease in rates of CPI increase. Probably, we deal with a classical example of how incorrectly put "diagnosis" has led to erroneous decisions in the field of the economic policy.
Base scenario correction
The new version was recalculated due to the recent situation in world markets. Because of it the most important changes in model were based upon the correction of the oil-price dynamics and of the world economy aspects. The annual-average price of Brent assessment was decreased to 105 $/bar. But in the medium-term perspective it will increase to 120 dol./bar. The lower assessment of the oil-price made recalculate the Reserve Fund and National Wealth Fund volume (5.4 trln. rub. at the end of this year). In the base scenario the growth rate of GDP in the USA and in Eurozone were essentially decreased. Due to the world financial crisis we had to review the reduction of the attracted foreign capital value in the medium-term period (for banks – the average value will be 60 bln. dol. a year). For stock indices modeling the lower FRS rate (2-3%) was used. Moreover the hypothesis of retaining the high volume of economy credits assumes the more massive assistance on the part of the Ministry of Finance and the Central Bank of RF to the bank system of Russian (11-14% of GDP in 2011-2012).
The exchange-value of dollar are not changing very much in future. The dollar exchange rate will gradually consolidate, the exchange-value of euro will moderately grow week in 2008-2012.
1
IEF RAS The QUARTER FORECAST 02.10.2008
Issue №11
RIM Group +7(495)1291744 QUMMIR model
Main exogenous variables
Line 1: the present forecast version
Line 2: the previous forecast version
2007 2008 2009 2010 2011 2012
Variables of the foreign convents
Oil-price, B,
$/bar.(at the end of period 88.9 105.0 111.8 114.8 116.6 119.4
88.9 110.0 112.2 115.3 117.1 119.8
Oil-price, B, $/бар. 72.7 106.0 109.2 113.7 115.9 118.4
72.7 111.2 111.4 114.1 116.4 118.8
Gas prices, $/1000 cub.m. 233.8 371.3 388.8 387.1 404.1 408.1
233.8 342.8 388.8 387.1 404.1 408.1
Oil export, mln.t. 255.8 243.5 259.0 261.0 262.1 261.3
255.8 256.1 259.0 261.0 262.1 261.3
Gas export, bln.cub.m. 191.8 200.9 210.1 218.8 227.2 238.7
191.8 202.7 210.1 218.8 227.2 238.7
Reserve Fund and National Wealth Fund,
trln.rub., at the end of period 3.8 5.4 7.4 9.8 12.7 15.4
3.8 5.8 7.8 10.3 13.1 15.7
Growth rate of GDP in EU,% 2.23 1.46 2.16 2.11 1.38 2.04
2.23 4.38 2.10 2.05 2.01 1.97
Growth rate of GDP in USA,% 2.94 1.82 3.56 3.26 2.25 3.29
2.94 2.16 3.54 3.26 2.25 3.29
GDP deflator in USA, % 2.57 1.79 2.44 2.55 2.48 2.50
2.57 1.79 2.44 2.55 2.48 2.50
Direct foreign investments, bln.$ 45.1 53.1 41.1 42.2 44.7 50.6
44.2 54.7 75.8 85.7 95.9 108.3
Variables of the exchange-value
Exchange-value of dollar (average
for period) 25.6 23.5 23.9 24.3 24.7 24.8
25.6 23.9 23.9 24.3 24.7 24.8
Exchange-value of euro (average
for period) 35.0 36.2 34.4 34.3 34.0 34.3
35.0 35.5 34.5 34.1 34.0 34.2
Variables of the domestic convents
Minimal labor compensation, rub. 1500.0 2300.0 2645.0 3036.5 3479.8 3980.9
1500.0 2300.0 2645.0 3036.5 3479.8 3980.9
Prices (tariffs) dynamics of the monopolist organization (the growth rate for the year)
Electricity prices 15.0 18.0 13.5 10.9 9.9 4.9
15.0 15.0 13.9 11.2 10.1 5.0
Gas prices 10.1 30.2 32.1 61.4 22.5 3.5
10.1 30.6 32.0 61.2 22.5 3.5
Transportation tariffs 4.9 24.0 12.2 9.5 6.5 6.1
4.9 18.3 12.8 9.9 6.8 6.3
Service prices (% for the year) 13.3 14.4 12.4 11.6 10.8 10.0
13.3 13.3 12.4 11.6 10.8 10.0
Variables of foreign economy
The share of other export 63.5 67.7 69.9 72.2 74.6 77.0
63.5 67.7 69.9 72.2 74.5 77.0
The share of other import 27.3 25.9 24.0 23.0 22.3 21.9
27.3 25.8 24.1 22.8 22.0 21.4
The FRS rate,% 4.5 2.0 2.2 2.3 2.5 3.0
4.5 2.3 2.8 3.3 3.8 4.1
Variables of the investors activity
Input of the residential construction,
mln. sq. m 60.4 71.0 79.2 86.1 91.5 96.0
60.4 70.7 79.2 86.1 91.5 96.0
Monetary sphere
Actual credit volume on the part of Central Bank of RF
and/or the Ministry of Finance to the bank system
of Russia, trln. rub. 0.05 0.16 1.32 3.39 5.72 11.57
0.05 0.09 0.10 0.11 0.12 3.02
Variables of consolidated budget (bln. rub.)
Expenditures for economy 2680 2922 3286 4056 4719 5133
2680 2960 3882 4530 5337 6216
Account budget balance
at the end of the yearа 681 1600 1600 1750 2150 1200
681 500 340 340 175 336
Omission of the domestic state-papers 45 143 201 261 313 376
45 142 198 258 309 371
Payment of the domestic state-papers 15 44 46 46 46 46
15 44 46 46 46 46
Demographical variables (mln. people)
Population of working age 90 89 88 87 87 86
90 89 88 87 87 86
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IEF RAS The QUARTER FORECAST 02.10.2008
Issue №11
RIM Group +7(495)1291744 QUMMIR model
The main forecast results
The growth rate of GDP is measured at 7% this year, then it is stabilized at the level of 6-6.4% in 2009-2012. We assume a double decreasing of import in a five-year period (to 13% in 2012) and such behavior will be due to reservation the high growth of investors activity in the immediate period (the annual growth rate is 15%). The investments allow to increase the growth of export (to 10.5% in 2012), largely owing to increasing of its unenergetic component (the share of which increases from 33% to 40% in 2008-2012 in total export value).
Taking into account the negative expectation of the world economies growth the net capital inflow average assessment will be about 100 bln. dol. in 2008-2012. And it will be twofold lower than our previous assessment (170 bln. dol.). Therefore the present forecast reflects the hypothesis of essential using the domestic liquidity potential for supporting the high growth of domestic economy. It means that the high investments and consumer demand should be supported by credits of the domestic bank system. Under the conditions of the significant foreign capital outflow the government of Russia has to support the domestic financial system with help of accumulated “oil-and-gas” reserves. In our forecast we assume that through the different refinancing mechanisms the government help may be 11-14% of GDP in 2011-2012.
The change of situation in the domestic market of goods and services makes it possible to hold the inflation at the level of 9% next year. Then the CPI index will moderately decrease to 5% in 2012.
The calculated exchange-value of dollar, defined as the currency supply and currency demand proportion, as well as the exogenously intended official exchange rate, assumed to be lower than the exchange-value under PPP. It means that we have a situation when the rouble provided to be overestimated.
The growth rate of the labor productivity is decreased to 5.7% in 2012. You can see the result in the pictures below:
The growth rate of GDP and the household consumption (annual moving average sum)
fdVTy_ind – growth rate of GDP
pceVTy_ind – growth rate of household consumption
The growth rate of export and import
(annual moving average sum)
exVTy_ind – growth rate of export
imVTy_ind – growth rate of import
The growth rate of the capital investment and the government consumption
(annual moving average sum)
invVTy_ind – growth rate of the capital investment
pubexTy_ind – growth rate of government consumption
The growth rate of the government expenditures and the household incomes
(annual moving average sum)
expKy_ind - growth rate of the government expenditures
moneyincy_ind – growth rate of the household incomes
The growth rate of the money supply (M2) and the GDP deflator
(at the same period of the previous year)
m2_ind – growth rate of the money supply
dfd_ind – growth rate of the GDP deflator
Employment and unemployment
(mln. person)
empT – employment
unempT – unemployment
Forecast and analytics calculation results of the main blocks in QUMMIR model
The current edition of distributing bulletin represents summary report that fully contained in application allocated on the webpage
Price dynamics
As a results of eight months 2008 the consumer price index reached 109,7 %. And, while within the first six months the gap between the current inflation and the inflation of the last years in annual terms increased, the gap in July remained at the level of the previous year and in August it reduced.
Representatives of the ministry of Economic Development, speaking about the inflation forecast for this year, mentioned the delay of the prices rising in the second half of a year. Now there are no any doubts that it takes place. If we assume, that the price index will increase by month growth rates of 2006 in the next four months 2008 (the year of the lowest inflation level for all period after crisis) the total inflation rate will be 111.8%.
Nevertheless, it is necessary to note the following results of the struggle with inflation. While the position in the grain market gradually improved before harvesting, the situation was finally normalized after the harvest gathering and the prices moderately come back in a habitual channel. So, if the price index on bread and bakery products was 106,4% and on macaroni products - 106,1 % in April then they arrive to 100,9 % and 101,4% accordingly in August. Thus, it is possible to say that the main reason of the price high growth in the previous years and the first half of the present year was completely overcome.
It is also necessary to note the rather sharp reduction of the money supply growth rates. Thus, while the annual money supply growth rates were changed about 55,42% in the beginning of 2007 then this level was reduced to 24,6 % in the present summer. At the same time, the reduction of the economy monetization does not damp the inflation, but it becomes the reason of the declining the capital investments and production growth.
Nevertheless, the reduction of the money supply growth rates, continued for a year, affected the consumer price index. Since the second half of this year, inflation began to slow down. Moreover, having responded on change of the monetary offer, inflation can react more sensitive to its changes in future. In this context, measures of supporting the appropriate liquidity level, which had just started to realize in view of world financial crisis, can accelerate the consumer price index. Minister of Finance has already regarded, that the final price level will exceed the official forecast making, for today, from 10.5 % to 11.8 %.
According to our forecast the peak of the price growth has already gone. And, since the second half of 2008 the growth rates of consumer prices are reduced. Nevertheless, according to our forecast the inflation will be 13.9 % at the end of this year.
CPI
Monetary sphere
The monetary base (broad definition) declined for 3% in January-August of this year (there was the increase for 15% in the same period of 2007). This decrease was due to the monetary base cashless part fall – mainly because of the credit institutions balances on Bank of Russia (BR) deposit facilities (from 270 in the beginning of the year to 70 trln. rub. in end of August) and OBRs[2] held by banks (from 100 to 38 bln.rub.). So we see the first strong signals of the banks liquidity problems, which try to support its payments and save the needed correspondent account balances level. One must say that the correspondent account balances of the banks raised for 27% in the January-August of 2008 (the same in the 2007) according to the current high-level GDP growth rate.
The matter is that there is distrust on the inter-bank market between the biggest and middle banks and the others. This fact is only intensifies the banks and business liquidity problems, caused by the sharp slowing down of the foreign capital clear inflow the first half of this year: 6.3 bln. dol. to the non-financial institutions sector and 10 bln.dol. to the banking system (comparing with the 31.5 and 37 bln.dol in the same period of 2007). As a result we see the dramatic growth of the interbank credit rates up to the middle of the September.