cialis en mexico purchase cialis online canada side effects of viagra use rx generic viagra cialis daily canadian pharmacy viagra samples viagra online usa no rx cialis us cialis online cheap viagra viagra for teens find cialis

Streetwise Professor

February 25, 2009

Island of Stability–Not!, Part I’ve Lost Count

Filed under: Economics,Energy,Russia — The Professor @ 11:29 am

RIA Novosti reports that the Russian economy contracted 8.8 percent year-on-year in January.   That’s pretty bad, but in fact understates the steepness and intensity of the drop.

Consider the Russian economy was growing about 6 percent through August.   So, normalizing January 2008 GDP to 100, in August GDP was approximately 104.   Now, it’s 91.2.   This means that the drop from August to January is 12.3 percent.   Annualizing that gives an almost 30 percent per year rate of decline.

Economic Development Minister Elvira Nabiullina recently stated that the decline in January vs. December was 2.4 percent.   Annualizing that gives a 25 percent per year annualized decline.

To put things in perspective, the Japanese economy contracted at a 12.7 percent annualized rate in the fourth quarter of 2008.   The US economy contracted at a 3.8 percent annualized rate in the fourth quarter.   UK GDP fell at a 6 percent rate in that quarter.   For Germany, the figure is about 8 percent.   For the entire Eurozone, about 6 percent.   The OECD, 6 percent annualized.   Canada–can’t forget Canada!–well, didn’t forget, but can’t say, because its 4th quarter numbers are not out yet.   Ditto for Oz.

Given Nabiullina’s estimate of a 2.4 percent decline in January alone, it is heroic to put any faith in the government’s just revised estimate of a 2.2 percent drop in GDP for the entire year.   Given that the budget is based on a 2.2 percent number, that the projected deficit based on that number is 8 percent of GDP, and Kudrin has said that the country cannot afford a deficit of bigger than 8 percent of GDP without sparking greater than 14 percent inflation–well, draw your own conclusions.

For those (not naming names;-) who still believe that Russia is not among the nations hardest hit the global economic crisis, The Professor has some extra credit homework for you;-)   Find a country that has contracted more rapidly than Russia since August.

And, for those who persist in insisting that Russia is in better economic circumstances than the US, please choose a metric or metrics by which we can make the comparison.   Hint: Don’t use GDP growth.

In brief, the Russian economic condition is dire.

Print Friendly

6 Comments »

  1. Any idea as to when European natural gas prices paid to Russia will be revised downwards? I know natural gas prices are based on a formula that calculates the price of natural gas based on the price of oil. If Russia is doing badly now, I imagine they will be doing that much worse when natural gas prices are cut by two-thirds or more and the wind is taken out of the sails of its leading company (or should that be leading debtor?) GAZPROM.

    Comment by Michel — February 25, 2009 @ 5:08 pm

  2. It’s done on a quarterly basis, lagged I think. So Q2 09 gas prices will be indexed to Q1 oil prices.

    The ProfessorComment by The Professor — February 25, 2009 @ 5:51 pm

  3. It says: “Russian GDP fell 8.8% in January 2009 compared with the same period last year.”

    Any reasonable “annualizing” should give 8.8%, no?

    And this: “Economic Development Minister Elvira Nabiullina recently stated that the decline in January vs. December was 2.4 percent. Annualizing that gives a 25 percent per year annualized decline.”

    Let me guess. The trick behind this “annualizing”: 1-.976^12?

    Comment by boba — February 26, 2009 @ 5:41 pm

  4. You’re not following. 8.8 percent is year-on-year, January-to-January. The economy continued to grow through August, at roughly a 6 percent annual rate (probably a little higher than that.) So the August GDP was about 4 percent (.06*8/12) above the January 08 GDP. The January 09 GDP is about 9 percent below the January 08 GDP, and hence about 13 percent below the August 08 GDP. So, GDP declined 13 percent in 5 months, which is about .42 years. Divide 13 pct by .42 you get roughly a 30 percent annualized rate. Similarly, the December-January decline is for 1 month. If the GDP declined that much every month, it would correspond to about 25 percent, as your calculation implies.

    The ProfessorComment by The Professor — February 26, 2009 @ 6:37 pm

  5. 1. “The January 09 GDP is about 9 percent below the January 08 GDP, and hence about 13 percent below the August 08 GDP. So…” Nope, not so! It just means that a CONSERVATIVE estimate of the annual GDP fall based on Aug 2008/Jan 2008 ratio is 13% :) If every month in 2009 you lose of 13% of the best month in 2009, then the annual loss is at most 13%, no?

    2. (about 25%, it’s related though to item 1) Let us try to be streetwise, let us (as an approximation) first ignore all that stupid stuff about adding geometric series. 25% is the decline in Dec 2009 in comparison to Dec 2008(under the assumption that decline will not slow down!). Annually it’s less, b/c in Jan 2009 it was only 2.4, say (24+2.4)/2, about 15%?

    Comment by boba — February 26, 2009 @ 7:13 pm

  6. Oh. You are talking about annual rates of decline on month-to-month basis not declines in annual GDP. Okey-dokey then!

    Comment by boba — February 26, 2009 @ 8:18 pm

RSS feed for comments on this post. TrackBack URI

Leave a comment

Powered by WordPress