Streetwise Professor

August 20, 2009

No Green Shoots on the Steepes

Filed under: Economics,Financial crisis,Politics,Russia — The Professor @ 9:49 pm

Although there are fleeting, ambiguous signs of recovery in the US, Germany, and France, conditions are far more bleak in Japan–and Russia.  Russian retail sales continued their steep fall:

Russian  retail sales dropped the most in almost ten yeas in July, sliding for a sixth consecutive month, as households cut back spending after incomes dropped and consumer borrowing declined.

Sales slid 8.2 percent from a year earlier after declining 6.5 percent in June, theFederal Statistics Service said in an e-mailed statement from Moscow today. That was more than the median  forecast of 16 economists surveyed by Bloomberg for a 7.1 percent drop.

. . . .

Retail sales began slipping in February for the first time since September 1999 as the weaker ruble, wage cuts and rising unemployment forced Russians to curb spending. The central bank’s five interest-rate cuts since April 24 have failed to spur lending as banks hold back on concern borrowers can’t repay loans. Lending to consumers dropped 1.1 percent in June for the fifth consecutive monthly decline, according to Bank Rossii.

Gross domestic product contracted a record 10.9 percent in the second quarter after shrinking 9.8 percent in the first three months, ending 10 years of expansion that averaged almost 7 percent. Average wages rose six-fold in the past decade as the economy recovered from the debt default and ruble devaluation of 1998.

. . . .

The average monthly wage fell an annual 5.8 percent in July, while real disposable incomes decreased 5.4 percent.

Capital investment tumbled 18.9 percent as industrial output declined an annual 10.8 percent in July.

Given all this gloomy news–which is far more gloomy than from developed markets (even Japan, which showed growth last quarter), and far, far more gloomy than from any emerging market–this bit is extremely anomalous: “Russia’s  unemployment rate remained unchanged at 8.3 percent in July.”  This calls into question the government statistics.  Or, if the government statistics are in fact correct, it means that there is considerable hidden unemployment; that firms (most likely due to government pressure) are not laying off people, but are keeping them on and paying them (mostly) even though they are not productive.  This eases social pressures in the short run, but eats into the already shaky financial foundations of Russian firms, and thus further undermines Russia’s dodgy banking system.  This will delay and weaken any recovery.

Russia faces extreme difficulties.  Its political brittleness, and the rigidity of its labor market (due in large part to the monocities, the legal and institutional nihilism and state capitalism that stifle small business and encourage large, cumbersome enterprise, and other Soviet inheritances) make it very difficult to adjust to large economic shocks; in this system, large enterprises serve as welfare agencies.  But this threatens to turn them into zombies–and take the rest of the Russian economy with it.

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  1. According to the Kremlin, retail sales were to turn around in July. The Kremlin’s story, and it’s sticking to it, is that the second half of the year will show rapidly reducing economic contraction so that the the recession will be far below double digits by year’s end and growth can kick in in 2010.

    Retail sales did not turn around, and let’s be clear: The Kremlin wouldn’t hesitate to cook the books by under-reporting the level of failure as to any economic statistic. Retail sales could be far worse then they are being reported, as could real incomes, to say nothing of unemployment.

    Moreover, Russia still has horrifying consumer price inflation, which makes no sense given the rapidly plummeting demand. Only the sickest of economic systems can produce these kind of results, and they are absolutely predictable from a government run by a clan of proud KGB spies with no economics or business training or experience of any kind.

    And let’s not forget to lay the blame where it belongs for all this: At the feet of the craven people of Russia themselves. They are the ones who created this situation, and the suffering that results is wholly deserved. If they don’t wake up and change their ways, they will see their nation collapse for third time in a century (fourth if you count Yeltsin, fifth if you count Kerensky).

    Comment by La Russophobe — August 21, 2009 @ 6:54 am

  2. What next? Will there be a point at which news from Russia can’t possibly get any worse? Just how long is this highway to Hell that Putin’s loyal subjects are speeding down.

    Comment by Snake Oil Baron — August 21, 2009 @ 11:37 am

  3. Oh, but, Pootie is so cute with his shirt off. All is good by him. Shaking the Russian sheeple out of their collective coma, hum, I have no idea what that would take. Sadly, Russians don’t have enough reliable useful information to make a rational decision if or when that ever happens.

    The pressure is on the commodity oligarchs to pay out of pocket the dead weight payrolls, it’s that or join Khodorkovsky on trumped up charges. How long can that last?

    Comment by penny — August 21, 2009 @ 1:10 pm

  4. FDI down a stunning 45%!

    Comment by La Russophobe — August 22, 2009 @ 9:02 am

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