How will the pandemic affect the Russian economy?
Pandemic, plunging oil prices, and Putin: What does the future hold for the Russian Economy?
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The ruble at the opening of trading on Monday fell by more than a ruble against the dollar and the euro, media reported on May 4. This happened against the backdrop of a decline in oil prices despite the beginning of the OPEC + agreement on the reduction of “black gold” production.
Meanwhile, Russia’s budget and the country’s GDP remain largely dependent on world oil prices and the volume of its sales. But there is a pandemic that has affected all economies without exception..
According to the latest data from Eurostat, the EU economy contracted by 3.5% in the first quarter of this year. According to the forecasts of the European Central Bank (ECB), the GDP of the Eurozone may shrink by 5-12% in 2021, the head of the ECB Christine Lagarde said recently, quoted by Reuters.
Recall that the European economy is the second largest in the world after the American one, which, in turn, is also entering a period of serious recession..
Christine Lagarde called the rate and depth of the economic decline unprecedented in the post-war period. According to her, the scale of the recession will entirely depend on the duration of the quarantine and how effective the measures to support the population and business will be..
What are the prospects of the Russian economy in this light??
Director of the Institute for Strategic Analysis FBK, Professor of the Higher School of Economics Igor Nikolaev believes that the drop in GDP in Russia will be comparable to the worst years in the history of the country, with what happened in the 90s of the last century. In his opinion, the reduction will be from 10 to 20%.
“Such a wide spread is due to the fact that it is impossible to make more accurate estimates now due to the highest uncertainty of the situation,” he explained in a commentary for the Russian service of the Voice of America. – In the 90s, let me remind you that 1992 was the worst year. Then the country’s GDP fell by 14.5%. Such are our prospects “.
At the same time, Igor Nikolaev believes that the results of the first quarter are still only flowers, and the berries will be in the second quarter. The decline in all industries began in April, when air travel, for example, fell by more than 90%, he stated..
Associate professor of the Faculty of Economics of Moscow State University, former assistant to the Minister of Finance of the Russian Federation, agrees with him. Oleg Buklemishev, although the first quarter for Russia did not seem to end so badly.
“But, unfortunately, all the main events associated with the pandemic will affect exactly in the second quarter,” he added in a comment to the Russian service of the Voice of America. – And the second quarter will mark the maximum drawdown in economic activity, consumption, income, and so on. In this regard, a lot will depend, including in terms of overall annual results, on how the Russian economy goes through this period “.
Oleg Buklemishev clarified that this is important not only in terms of current consumption or production, but also in terms of potential irreversible losses. This is the closure of enterprises, bankruptcy and a surge in unemployment, which for many can turn from a temporary phenomenon into a permanent one, he said..
The United States has already allocated over $ 3 trillion for anti-crisis measures, Europe – about $ 2 trillion. In total, according to the IMF estimates, they intend to allocate about $ 8 trillion for state support of the largest economies of the West..
Russian support measures are fundamentally different from Western ones, Igor Nikolaev emphasized. In his opinion, if in many Western countries they almost immediately went to direct payments to the population, then Russia was extremely reluctant to follow this path: “To some extent, this is realized only to the extent that gratuitous financial assistance to employees of small and medium-sized enterprises in the amount of one minimum wage – 12,130 rubles per employee per month. But this is very little. To keep the economy afloat, effective demand is extremely important. And where does it come from if the real incomes of the population were falling, and many entered the crisis with virtually no savings “.
This is not an effective policy, and it will only worsen the economic situation of the country, the professor concluded..
The measures taken by the Russian government to support business and citizens can be counted on the fingers of one hand, says Oleg Buklemishev. Moreover, they, as he sees it, for the most part “are not adequate either in size or in direction”: “The biggest concern here is associated with being late. All measures that are taken from an economic point of view are taken with a significant delay in understanding the extent of the failure and what needs to be done. Now, first of all, the support of people is required so that they can simply survive in this difficult period. The second goal, which is probably more important in the long term, is to support the economy itself so that its engines do not stall. And so neither the first nor the second direction, alas, is not doing anything cardinal “.
There is a feeling that the government is afraid to spend a penny much more than to lose in the future a significant part of consumer demand and production activity, the economist concluded..