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Claus Vistesen and I also have a number of country briefings and study papers available for download in PDF format. The latest are:

Bank Rossii Eases Further As Russia's Economy Contracts At A Record Rate

The ECB's Balance Sheet At A Glance.

Friday, September 19, 2008

Russia Stock Markets Reopen, Surge and Close Again (Temporarily)

Russian stock exchanges had to halted trading again today (Friday) for the fourth successive day running, but this time the explanation was a rather different one - since stocks rapidly surged higher, following President Medvedev's announcement yesterday that the government was going to inject funds into the purchase of Russian stocks. Exchanges suspended trading after just hours of trading Friday after shares on the benchmark RTS and MICEX indexes shot up by 20 percent and 26.3 percent, respectively. Trading was only temporarily suspended and was expected to resume later today.

Stocks bounced back after the government rushed through a series of emergency measures — amounting to some $120 billion worth of relief — in the shape of increased liquidity to the banking sector and share purchases on the domestic markets. In fact Russia's RTS Index, which had previously been the best global stock performer this decade, had turned into the world's cheapest, at least on the price to earnings ratio measure, since at the time of closure it was valued at only 5.6 times the earnings of its 48 component companies, the lowest of any among the larger markets internationally.

Among the shares which surged the most were Russia's banks, and VTB Group and OAO Sberbank, Russia's biggest banks, benefited considerably from the perceived impact of the central bank decision to cut reserve requirements and the government pledge of up to $44 billion to shore up their liquidity. VTB jumped 1.63 kopeks, or 60 percent, to 4.35 kopeks, the biggest gain since the bank went public in the world's largest initial public offering last year. Sberbank rose 14.2 rubles, or 49 percent, to 43.01 rubles, its steepest gain in 10 years. Trading in both stocks was suspended for one hour at 11:05 a.m. Moscow time after their exceptional gains. Sberbank was suspended a second time on the Micex Stock Exchange at 12:58 p.m.

For more details on the background to all of this please see yesterday's extensive review on this blog.


Anonymous said...

I don't share your assesment, that the industrial base in Russia is lagging GDP growth,industrial production in Russia is disagregated in 3 sectors(ressource extraction, manufacturing and electricity generation) acutually it is only the ressource extracting sector, where growth is hovering around 0-1% which is reducing overall industrial production( electricity generation is also slower at around 4%, last year it was flat) and I don't see a problem in this, while manufacturing is outperforming GDP growth, last year it was 9,6%, this year so far it is 7,6%

Anonymous said...

there is one more think about Russia you should be interested in, Russian population increasead in july 08, there were no reports in the media or no politicians making announcements about. but the Rosstat data says, that Russian population in june decreased by 133,7 thousands this year, the july number is 125,1, an increase of 8,5 thousands

Edward Hugh said...

Hello Anonymous,

"I don't share your assesment, that the industrial base in Russia is lagging GDP growth"

OK, fair enough, I mean I don't have exclusivity on opinions. I do take your point about the fact that it is the resource extraction sector which is having the most difficulty increasing output. I wouldn't be quite so blasé about the electricity sector not keeping pace, since this must reflect something, in the sense that if families are getting generally better off, then they should normally be using more energy across the board. So if output isn't keeping pace then there must be some sort of structural problem somewhere I would have thought, but I am only guessing here.

On manufacturing industry I do think you are underestimating the problem in the longer term. I think there is a consensus across external commentators (the IMF, the world bank, and independents like me), that wages and producer prices have been rising far faster than productivity gains would justify. The end result of this has to be a loss of competitiveness, we have seen this in country after country in the EU - Italy, Portugal, Spain, etc. The manufacturing sector in all these countries is now stuggling mightily, and especially in Spain as the indebtedness driven construction and consumption boom, fuelled by external borrowing, grinds to a halt.

Russian manufacturing has been slowing over the last three months - see for example the VTB manufacturing purchasing managers indexes, which are a reasonable indicator - even as the economy has continued to grow strongly. Now since, as you point out, resource extraction output seems to have hit a ceiling, it is important that manufacturing be efficient, competitive, and able to shoulder the weight of a much larger part of the economy. This is just what I don't see happening, and I see even less likelihood if the recent events make FDI flows less strong in the future.

At the end of the day I think all this is more or less simple elementary economics.

I think for a time people were trying to avoid this reality by suggesting that a reliance on construction and financial services could offer an alterantive model, but we have seen what just happened in the US on this front, and even the US is now realising you cannot simply drive an economy in this way, and that you do need a strong manufacturing export sector, and this logically means a price competitive one.

Russia's economy is overheating badly, and has been overheating badly for nearly a year now, the inflation is the indiactor of this, yet there has been no serious policy initiative to go to the root of the problem. Or do you have another explanation why inflation is at 6% in Brazil and 15% in Russia, while both countries face broadly speaking the same global food and energy prices.

Edward Hugh said...


"there is one more think about Russia you should be interested in, Russian population increasead in july 08, there were no reports in the media or no politicians making announcements about."

I'm not sure if you are the same anonymous as before, but still. Basically these demographic problems are long term. They have been building up since the 1980s and are generalised across all of Central and Eastern Europe (as well as - in low fertility terms - Southern Europe and now emerging Asia, although Eastern Europe is different due to the low male life expectancy, which makes for a very special problem set). In this sense we won't see much in the way of important changes on a month by month basis.

Population data can fluctuate in the short term due to the fact that more (or less) people may die and more (or less) people may be born. The former is to some extent a function of movements in life expectancy, and as we would all hope that this is going to rise in Russia as living standards rise, then logically, in the short term, less people will die (this is called in demography a tempo effect). Something similar happens with births, since there has been considerable "birth postponement", and then suddenly a lot of women can become mothers all at once. It is hard to say. You also need to think about changes in the shape of the age pyramid, and hence how many people there are in each of the relevant age groups.

Basically this all becomes pretty complex, but of one thing I am sure, you need to look at longer time periods that months or even years. This sort of thing can only be measured over decades (that is a change inunderlying trend). I think that life expectancy is rising in Russia (at least I hope it is) and I doubt that fertility was ever quite as low as the short term period indicators were registering (1.2tfr etc), but Russia is still way below replacement level, and the generational cohorts have all shrunk, so you have below replacement childbirth over a shrunken base, which means that Russia's population is structurally set to contract and age, and about this I have little doubt, since it is already inbuilt.