Economic News from Russia

[Albion]

if russia reaches full potential of agriculture it can print money as much as it can not worrying about inflation.

I don't think so. It's not in Russia nor America's interest to boost yields too much since that will lead to lower prices and definitely not be "printing money".
The world's major wheat producers must balance a fine line between increasing yields to meet global demands - rising population and higher incomes in the developing world, with keeping supply limited to sustain good prices.

In England we almost stopped producing wheat in the 19th century since it became dirt cheap to get better quality stuff from the colonies, Argentina and America. English wheat became noncompetitive because it cost more to produce and was of inferior quality (wet climates lead to soft wheat for cakes and biscuits, dry climates lead to hard wheat for bread and pastry).
Eventually the world population grew though, WWI and II cut off wheat supplies sending the prices up and keeping supply low. England went from producing mostly just livestock to being self sufficient in wheat again, and with superior strains perfect for the climate it has been self sufficient in both hard and soft wheat for most years since (except for the odd bad year like 2012 when much had to be imported).

Supply and demand is everything. But a consequence of higher efficiency and higher yields in Russian wheat farming could perhaps influence other areas of agriculture. Cheap wheat prices would mean cheaper cattle feed, making meat cheaper and more available. Since raising cattle on grain is so inefficient by its very nature, this alone would possibly offset any higher yields, keeping prices at a good level for farmers.

[glass]

The grain harvests in Russia and America have a very noticeable affect on world food prices since these are two of the largest producers. If Russia became more efficient at farming it could potentially boost yields greatly, currently it is one of the top producers due to the large area dedicated to wheat.

Russia has too much lands, it is actually cheaper to enlarge fields and import more turks/chinese/koreans in order to get larger yield than increase productivity.

I don't think so. It's not in Russia nor America's interest to boost yields too much since that will lead to lower prices and definitely not be "printing money".
The world's major wheat producers must balance a fine line between increasing yields to meet global demands - rising population and higher incomes in the developing world, with keeping supply limited to sustain good prices.

Wheat is not really profitable so farmers and private investors are not interested in it. They prefer to cultivate sugar beet, sunflower and some other. Wheat production is mostly under state control, worse posible yield + state wheat reserves should be large enough to fit domestic needs. Some years we have average or good yield so surplus forms russian export,

[RussiaPrussia]

Russia May Raise 2013 Growth Forecast On Bumper Harvest, Low Base -Officials

By Alexander Kolyandr
MOSCOW--Russia's government is likely to raise its forecast of 2.4% economic growth this year, after a string of downward revisions in recent months, as the country is expected to bring in a bumper grain harvest, among other factors, officials told Dow Jones Newswires this week.
The increase, which is expected to be announced by the economy ministry in September, would be a rare piece of good news for the Russian economy, which has stalled in recent months amid weak demand for the country's commodity exports, slowing investment and unrelenting capital flight.
"We can say that the weakest point for the economy has been passed already, and in the absence of negative surprises from the global markets, we can expect higher growth," Deputy Finance Minister Moiseev said in a phone interview, noting that he's not directly involved in making the official forecasts.
Other officials familiar with the plans, however, confirmed that an increase was being considered, but declined to be quoted by name, citing government policy. Russia's gross domestic product forecast for this year may be increased to as high as 2.7%, they said.
Russia's financial markets have taken a beating since the spring, like others in the developing world, largely because of concern that the U.S. Federal Reserve would begin tapering its bond-buying purchases, which undermined investor appetite for emerging market assets. However, Russia's authorities had started cutting their growth forecasts before the Fed's talk of tapering, as a lack progress with economic reforms and privatization had spurred capital flight.
However, some officials now say the slide in the ruble's value could provide a boost to domestic producers, while the latest cooling of China's economy hasn't yet had a major impact on prices for oil and gas, Russia's main exports. Also, concern about the Fed tapering its bond purchases has ebbed this week after its chairman, Ben Bernanke, made it clear the central bank was in no hurry to tighten monetary policy.
Economists and officials said the main factor driving the likely increase in Russia's GDP forecast was the relatively strong grain harvest expected this year. Last year's farm output was weaker than usual, hence this year's improved harvest is expected to boost growth.
In addition, the economic slowdown expected in the first half of this year--with a growth rate of about 2.0% forecast, the lowest since 2010--is partly the result of a tough comparison with the corresponding period in 2012, when election- season spending had boosted the economy.
That largesse tapered off in the second half of last year, meaning growth figures for the rest of 2013 are likely to be stronger than those seen in the first half, officials said. An expected easing of interest rates by the Bank of Russia also may help support growth later this year.
However, despite the likely upgrade for growth in the second half, economists and officials doesn't expect the expansion to accelerate much further, holding to a 2.5% to 3.2% range for the next several years as stagnant commodity production, reduced privatization and years of underinvestment hamper efforts to lift growth toward the Kremlin's 5% target. The official GDP growth forecast for next year remains 3.7%
Last month, the International Monetary Fund cut Russia's growth forecast for 2013 to 2.5% from 3.4%, and to 3.25% from 3.8% for 2014, citing weak investment, along with poor external demand.
The IMF recently praised Russia's tight fiscal and monetary policy, but called for more reforms to boost growth.
"Ambitious economic policy reforms are necessary to realize the Russian economy's medium-term potential and reduce its vulnerabilities," the fund said.
However, the Kremlin is expected to rely on increased state spending to boost growth, rather than adopt any bold economic reforms.
Write to Alexander Kolyandr at alexander.kolyandr@dowjones.com


Read more: http://www.nasdaq.com/article/russia...#ixzz2Z7K36PKe

[RussiaPrussia]

http://www.ft.com/intl/cms/s/0/fb19d...#axzz2aENi5PMv

Russian economic growth disappointing in second quarter with 1.9%

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Russia’s economy expanded at a slower pace than expected in the second quarter, increasing the likelihood that the country will grow at well under 3 per cent this year.
Gross domestic product rose at an annual rate of 1.9 per cent between April and June, Andrei Klepach, the deputy economy minister, said on Friday, bringing GDP growth for the first half to 1.7 per cent after a particularly weak start to the year.

Analysts blamed the low growth on a slowdown in investment, which accounts for about a fifth of Russia’s GDP, as well as weak external demand from key export markets such as the EU.
At present, analysts forecast the economy to grow at 2.8 per cent for 2013, but Ivan Tchakarov, chief economist at Renaissance Capital, said he expected the consensus forecast to fall to at least 2.5 per cent.
“This is a disappointing number,” he said of the second-quarter GDP figure. “I think we are going to see a flurry of downward revisions for the whole year.”
The slowdown in investment comes as Russia’s biggest commodities groups, such as Gazprom and Rosneft, slash their capital expenditure plans for the year, while foreign investors also pull back either because of domestic concerns about Russia or the slowdown in their home markets.
“We have seen cuts in the investment programmes of the largest companies, including the state-run companies. We have seen government spending decrease in real terms if you include inflation. Consumer demand has been weakening following the trend of slower growth in real incomes,” said Vladimir Tikhomirov, chief economist at Otkritie Capital, the Moscow brokerage.
Russian retail sales are now growing at about 3 to 4 per cent on an annual basis, versus 7-8 per cent this time last year. Meanwhile, both the public and private sectors are more constrained in their ability to raise wages.
Analysts expect growth to pick up significantly in the second half of the year, partially thanks to a weak comparative period in 2012, as well as expectations of a strong harvest.
Russia’s agricultural ministry is predicting a 30 per cent rise in agricultural output this year – a significant enough increase to help food prices fall and inflation to come down.
“If you take a more forward-looking view, the second half of the year will be better. There will be a better harvest and slower inflation, which will give the central bank more of a reason to cut rates,” said Mr Tchakarov.
The government has also expanded the number of refinancing tools that the central bank can use to increase liquidity in the system, making it easier for banks to lend to the real economy.
Mr Tchakarov noted there had been some positive signs, such as strong agricultural output in June. But he said the weak first-half GDP figures would significantly worsen Russia’s full-year growth figures.
“If in the first half of the year it’s 1.7 per cent growth, you definitely need a GDP growth of about 3 per cent in the second half in order to get to 2.5 per cent growth for the year,” he said.
Russian GDP grew by 3.4 per cent in 2012 and 4.3 per cent in 2011.

[RussiaPrussia]

Rock bottom: Russian economy hits low, will pick up in July

Russia is nearing the end of stagnation, and the Ministry of Economic Development anticipates the economy will expand more rapidly in the next two quarters, fueled by investment.

In the second quarter, Russia’s economy grew by 1.9 percent, an improvement from the 1.6 percent growth it posted in the first quarter, but still well below the best case scenario of 3 percent growth. In 2012 the economy grew 4.7 percent.

The growth figures are from RosStat, Russia’s federal service of state statistics. Though higher than forecast, Russia’s economic performance in Q1 was the worst quarter since 2009.

The Ministry of Economic Development expects the economy to jump start in July, propelled by rising exports and a boost in investment in the second half of the year.

Trade promises strong growth. In June exports rose 0.4 percent to $41.6 billion, and imports rose by 5.7 percent to $27.9 billion, according to the Ministry of Economic Development.

Russian academics say the country has entered a technical recession, as its basic industries contracted for 6 months in a row.

Investment is the bigger challenge and a highly sensitive ingredient to Russia’s growth. In Q1 investment fell 30 percent, and the pessimistic trend is slated to roll over into July. High inflation has weakened the ruble’s exchange rate, which the government plans to loosen.

In June, the World Bank cut its growth forecast for Russia to less than 2.2 percent in 2013 and 3 percent in 2014, after revising the January forecast the economy would grow by 3.6 percent in and 3.9 percent in 2014.

Bloomberg has projected growth of 2.5 percent.

“We are taking a conservative path, and in some cases even lower,” Deputy Economic Development Minister Andrey Klepac said, as GDP in June only grew by 1.5 percent.

According to Klepac, almost a third of investment is accrued in November and December, which will contribute to reviving Russia’s sluggish economy.

Russian central bank chief Elvira Nabiullina (R) and Australian Treasurer Chris Bowen participate in the G20 finance ministers and central bank governors family photo in Moscow, July 20, 2013.(Reuters / Grigory Dukor)

Russia's economy has been hit by weaker investment and exports, but is expected to pick up later in the year thanks to stronger budget spending. The government expects growth to slow to 2.4 percent this year, from 3.4 percent in 2012.

Renaissance Capital, a leading investment bank in Russia, doesn’t foresee the economy growing faster than 2 percent in the coming year.

"We anticipate that there will be a turning point in negative trends in the second quarter and that economic growth will surpass 3% in the second half of the year," Andery Belousov, head of the Ministry of Economic Development, said in June.

Bank sell-off
Recent signs of slowdown have prompted government officials to prepare Russia for recession by inflating the real economy.

The new Central Bank chief Elvira Nabiullina hasn’t budged on changing interest rates, but, under pressure from the Kremlin to increase the credit line to the economy, will hold its first auction for secured against non-market assets and guarantees on July 29.

The monetary easing policy will offer a floating interest rate set at 5.75 per one-year loan. With $15.3 billion (500 billion rubles) on offer.

The new ‘anti-crisis tool’ has been praised by economists. Rosbank’s Vladimir Kolychev lauded Nabiullina for ‘rolling out the big bazooka’.

The sell-off will hopefully provide more long-term funding for banks, as well as make the ruble more liquid.

Moody’s rating service downgraded the long-term senior debt and deposit ratings of Russia’s key state lender Sberbank (to Baa1 from A3), Bank VTB and VTB24 (to Baa2 from Baa1) and Russian Agricultural Bank (to Baa3 from Baa1). The outlook for these ratings is stable.

"Recession is not expected. I think that the growth in the second half [of this year] will be higher than in the first [half]," the country's economy minister and former central bank deputy chairman, Alexey Ulyukayev, told Prime news agency Tuesday.

[RussiaPrussia]

Russian central bank move to spur lending better than rate cuts

Central bank to launch medium-term refinancing auctions

* Cost of 12 month funds 5.75 pct, 25 bps above repo rate

* VTB estimates will reduce cost of borrowing by 100 bps (Updates with details, background, comments)

By Denis Dyomkin

YUZHNO-SAKHALINSK, Russia, July 16 (Reuters) - The Russian central bank's move to cut the cost of long-term funding for banks to spur lending should do more to shore up the slowing economy than cutting interest rates, the Economy Minister said on Tuesday.

The central bank, under pressure from the Kremlin to boost credit flows to the economy, which is growing at its slowest pace in four years, kept interest rates on hold last Friday but announced it would launch auctions for one-year loans secured against non-market assets and guarantees.

By making available long-term funding at a relatively modest premium to its short-term rates, the central bank hopes to flatten the interest-rate curve and boost the so-called transmission of its policy rates to the real economy in Russia.

The initiative was the first under new central bank chief Elvira Nabiullina, a former economic aide to President Vladimir Putin.

The facility, which could slice more than a percentage point off the cost of funds, has drawn comparisons with the Long-Term Refinancing Facility set up by the European Central Bank to deal with a liquidity crunch at euro-zone banks.

Economy Minister Alexei Ulyukayev, a former central banker who recently moved into government, likened the facility to quantitative easing, seen at central banks such as the U.S. Federal Reserve to lower long-term interest rates although the Russian facility does not involve an asset purchase programme.

"I think it was an absolutely right decision," Ulyukayev told reporters on a trip to Russia's far east. "This is a form of quantitative easing, which is more efficient right now than easing of policy by lowering interest rates."

The new facility has been praised by economists, with Rosbank's Vladimir Kolychev saying Nabiullina was "rolling out the big bazooka".

Russia's economy has been hit by weaker investment and exports, but is expected to pick up later in the year thanks to stronger budget spending. The government expects growth to slow to 2.4 percent this year, from 3.4 percent in 2012.

The rouble has weakened by 3 percent against the dollar since Chairman Ben Bernanke signalled on May 22 that the U.S. Federal Reserve could wind down its monetary stimulus, boosting the dollar and hitting emerging market currencies.

However, unlike other emerging economies such as India, which hiked rates on Monday after the rupee hit a record low, Russia is prepared to tolerate a weaker currency, which would boost the rouble value of energy export revenues and make it easier to hit budget targets.

MUCH-NEEDED STIMULUS

Russia's central bank will launch on July 29 the first auction for loans secured against non-market assets and guarantees, for 12 months with a floating rate initially set at 5.75 percent with 500 billion roubles ($15.3 billion) on offer.

That represents a premium of just 25 basis points to the central bank's benchmark one-day minimum auction repo rate - which the central bank held steady last week for a 10th month.

The bank signalled that it was also ready to ease policy in future. Analysts, however, agree that the new loan facility would have a bigger impact than cutting short-term rates, while eliminating funding risks in a banking sector that is prone to liquidity shortages.

"The ability to borrow at the new facility will put downward pressure on banks' deposit and lending rates," VTB Capital analysts said in a note.

"The total effect could easily reach 100 basis points, thus providing a much-needed stimulus for the economy".

The central bank move could bring overnight lending rates, currently above 6 percent closer to the middle of the policy rates corridor of 5.5 percent, Rosbank estimated.

The new one-year facility would be 175 basis points cheaper than the central bank's current standing facility, which is likely to bring "significant demand" for this source of funding, Rosbank's team of economists added in a note.

Wide net interest margins collected by Russia's state-dominated banking sector have kept the cost of credit high, but the prospect of easier funding conditions has already led state-controlled market leader Sberbank to cut loan rates.

Sberbank, acting to defend its share of a slowing market, will cut interest rates on consumer loans by 2-4 percentage points, to 16.5-22.5 percent, in a promotion that runs to the end of September. ($1 = 32.6402 Russian roubles) (Reporting by Denis Dyomkin; Writing by Maya Dyakina; Editing by Douglas Busvine and Susan Fenton)

[RussiaPrussia]

Russian Central Bank revives anti-crisis tools

As Russia’s economic growth slows down and lending falls, the Central Bank is bringing back measures used during the liquidity squeeze of 2008-2009.

The Central Bank will now be refinancing banks not only on collateral of loans to companies with international rating, but also on loans to state-run strategic enterprises without international ratings. Audits of many of them have not been carried out because of the secrecy of production (for example, defense enterprises or the nuclear industry). There are more than 300 such organizations in Russia, business daily Vedomosti reports.

Central Bank initially applied this measure in order to boost liquidity in the banking sector in 2008-2009. The bank terminated it when it became clear that the economic situation improved and the financial sector accumulated excess liquidity, Vedomosti reports.

However, the new chairman of the Central Bank Elvira Nabiullina says there should be no parallels with the crisis years.

"We are speaking of those enterprises only whose loans are government insured” Nabiullina told Vedomosti.

At the peak of the crisis in February 2009, Russia’s Central Bank included more than 100 strategic enterprises with no international rating in the list of organisations, whose notes and loans were taken as collateral for refinancing by the Central Bank, Vedomosti reports.

Big state-owned banks were the main beneficiaries from the refinancing as the majority of loans to strategic enterprises were on their balance sheets, business daily Kommersant reports.

Such assistance may be needed again, the newspaper quotes experts. The Russian economy is slowing down: it grew just 1.6% in the 1st quarter of this year compared to 4.7% a year earlier.

Corporate lending has also fallen sharply to 14% in January – April this year from 24% for the same period in 2012, the newspaper quotes Higher School of Economics data.

[RussiaPrussia]

[RussiaPrussia]

[RussiaPrussia]

Falling ruble to boost Russian carmakers, state coffers

Economists predict downward pressure on Russia’s currency will boost tax revenues and provide a fillip to carmakers and local vendors. This time, oil exporters will miss the party.

Russia’s falling ruble may provide a boon for government coffers and a bonanza for the nation’s car industry and other vendors, prompting Russians to buy local as the currency descends to its lowest level against the dollar in four years.

A host of factors have combined to push the ruble down, from fears about the end of quantitative easing by the U.S. Federal Reserve to statements by Russian Finance Minister Anton Siluanov that a weaker ruble would have economic benefits for Russia.

Sluggish performance in the European Union, Russia’s largest trading partner, and less-than-rosy forecasts for GDP growth have also had an effect.


But unlike the historic ruble devaluation of 1998, when Russia’s oil companies booked windfall ruble profits by selling crude in dollars, new tax rules mean the state will collect most of the surplus oil profits this time.

Domestic firms that target the Russian shopper, on the other hand, should get a lift, as Made in Russia becomes more competitive.

“The costs of imported goods will increase, and one of the biggest winners will be Russia’s burgeoning auto industry,” said Chris Weafer, founding partner of Moscow-based Macro Advisory. “Russia’s auto market will soon overtake Germany to become the largest in Europe.” Carmakers that may benefit include local giants VAZ, GAZ and Sollers.

In some ways, Russia has seen this movie before. Facing a host of macroeconomic headwinds, depleted foreign exchange reserves and fallout from an Asian economic crisis, Russia devalued its currency in 1998, sending the ruble spiralling from 6 to the dollar to nearly 30 per dollar over the course of a few months.

Today’s slide isn’t nearly so severe. At the start of 2013, the ruble traded around 30 to the dollar. Today it trades around 33 per dollar, though some economists predict the currency may sink to as low as 37 per dollar by year’s end, especially if the price of oil, Russia’s main export, falls.

The ruble is only partly free-floating. The currency is allowed to trade within a range against a dollar-euro basket set by the Central Bank of Russia, which has spent $11 billion propping up the currency since this spring as it allowed the band to slip, according to Bloomberg. Russian policymakers aim to allow the currency to float freely by 2015.

“In 1998, Russian oil companies paid almost nothing in taxes,” Weafer said. “Today the combined tax burden approaches 90 percent. So the real beneficiary is the state budget.”
Related:



Tax receipts from oil exports provide a buttress to Russian sovereign debt, Weafer said, creating a possible opportunity for yield-hungry investors looking for fixed income with low risk.

“Russia is very comfortable in terms of debt servicing and won’t have to borrow to balance its budget. The Russia28 Eurobond is currently yielding 5.6 percent, while the Russia30 is at 4.3 percent. Those are priced in euros – so there’s no currency risk – and the yield is reflecting a budget risk that’s not really there,” said Weafer.

143 Million Russians Buying Local?

The falling ruble should provide local vendors a hand in capturing the Russian consumer, a group that is increasingly targeted by global retailers as rising incomes boost purchasing power in Europe's largest country by population.

A recent World Bank study ranked Russia as Europe’s largest economy, and the world’s fifth-largest in terms of purchasing power parity.

“Nowadays, the disposable income of the average Muscovite exceeds that of the average Houstonian,” said Edward Verona, former President of the US-Russia Business Council.

Rising incomes are due to “a decade of buoyant economic growth, a low, flat income tax rate, social benefits provided by the Russian government and, perhaps most importantly, the fact that the average Russian owns his or her home and doesn’t have a mortgage,” Verona said.

“Russians have a lot more money to spend on consumer goods and they are eager to catch up after seven decades under communism and a difficult transition to a market economy,” Weafer said.

Local winners could include Russian food retailers like Dixie; Russia’s only publicly-listed meat-producer, Cherkizovo; and Magnit, the firm some investors call “Russia’s Walmart.”


Magnit has been “propelled to the top of Russia’s food-retail industry, a fast-growing, $300-billion-a-year market that is now Europe’s largest,” the Economist magazine wrote earlier this year. By early this summer, Magnit’s share price had already doubled over the previous 12 months after the company posted a record $4.3 billion in quarterly sales.

Diamonds and Caviar

And what of Russia’s now-inexpensive exports? “A Russian company called VSMPO-AVISMO is Boeing and Airbus’ largest supplier of titanium. The aircraft manufacturers are doing great now that they are getting that input cheaper. This price of the 787 will go down,” said Weafer.

The weaker ruble also means Russia’s food exports to the United States – like caviar and crab legs (valued at $175 million in 2012, according to the U.S. Census Bureau) – will be comparatively cheaper. “This could be a great time to buy a diamond for that special someone,” concluded Weafer.

“Russia’s Alrosa is the world’s second-largest diamond exporter after South Africa’s De Beers. Alrosa’s diamonds are generally of a better quality, so even though South Africa’s currency has dropped even greater than the ruble, Russia offers the best deal.”