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Low and stable TV prices point to Russia’s economic isolation |
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Maybe Russia should be thankful for the 1998 financial crisis. Its economic isolation following devaluation of the rouble and default on its debt in August 1998 was once a problem. Now it will probably be a boon. Any global recession caused by America’s new war is unlikely to hit Russia hard
“How can the price of a TV in Russia be a fraction of that in Japan?” asks Yukos chairman Mikhail Khodorkovsky. “It is because the Russian economy is not integrated into global markets. If the Japanese hike prices on TVs in Tokyo, there will be price increases in Manila within two weeks, but in Moscow the prices stay the same.”
It is a hole that Russia has been trying to climb out of for the last two years. And putting in its first strong economic growth in 30 years last year it has been having some success. Thanks to high international commodity prices the economy is gathering momentum and rebuilding links with the rest of the world. This year has already seen the first international syndicated loan and a mild increase in foreign investment.
After several months of dithering, analysts are now upgrading their economic growth forecasts. Russia turned in a robust 8.3% GDP growth at the end of 2000 and analysts are now predicting between 4% and 5.7% for the end of this year, up from 3% to 4% a few months ago.
Will these estimates be revised down again in the aftermath of the terrorist attacks of September 11 or if the US decides to launch a sustained military campaign in Russia’s backyard? Analysts say no.
Eric Kraus, head of strategy at Russian investment bank NIKoil, says: “There will be some impact if commodity prices fall, but the market has been expecting a slowdown in the west for six months already. It is already priced in. All that will happen now is that the slowdown will happen a little faster.”
Roland Nash, head of strategy at Renaissance Capital in Moscow, agrees. He points to the reasons why Renaissance recently upgraded Russia’ GDP forecast and says that they still hold true.
“Economic links with the rest of the world are limited,” says Nash. “Trade makes up a large part of GDP and oil and gas exports a large part of that. But if you had to guess, you’d think oil prices would go up, not down.”
The price of oil remains the joker in the pack. The consensus in Moscow is that prices will remain in Opec’s $25 to $28 corridor. By late September prices were falling below this level on concerns about the general economic slowdown Maybe more important, one of the US policy changes Russian oilmen are expecting as a result of the September 11 attacks is a premium on non-Muslim oil. After the Middle East, Russia is the biggest producer of oil. Furthermore with the CPC oil pipeline about to start pumping oil from the Caspian, supplies of oil via Russia will increase.
One worry is that the rouble is beginning to appreciate against the dollar, and this may put a brake on growth. Already imports are rising fast and putting pressure on domestic producers that have been enjoying the boon of trying to fill a $30 billion consumer goods-hole left by the overnight departure of foreign competition in the summer of 1998.
Russia is still running a whopping trade surplus: foreign trade increased 8.3% to $89 billion during the first seven months of this year and exports are double total imports. However, imports have been rising fast of over the past few months; over the first half of September they were up more than 42% year on year.
