其他服務業Business News

Two new Central Bank reports on the state of the Russian economy contain almost mutually exclusive statements. In Russia, "there are no opportunities to expand the supply of goods and services at a pace sufficient to meet demand," according to the first bulletin of the Central Bank.

And a new report on the regional economy claims the exact opposite – enterprises could produce more products, but are forced to reduce production due to reduced demand. Whether Russian enterprises can increase output or not is not a theoretical question, but a fundamental justification for the strict restrictive monetary policy of the current leadership of the Central Bank. If enterprises are operating at the limit of their capabilities, as the Central Bank management constantly claims, then lending to the population should be limited due to the threat of a new wave of inflation. However, many economists argue that the Central Bank artificially underestimates the potential of the Russian economy and says that it is impossible to expand the supply. Today, the facts of a decrease in the workload of enterprises due to insufficient demand have for the first time penetrated the official reports of the Central Bank itself.

Russian automakers declare a decrease in their capacity utilization relative to the values of autumn against the background of reduced demand, according to the Central Bank's report on the regional economy. Data on the reduction of production, with reference to a survey of enterprises, is provided by the Volga-Vyatka Department of the Central Bank, which is responsible, in particular, for the Samara, Ulyanovsk and Nizhny Novgorod regions – regions where the largest Russian automakers are located, TASS reports.

"According to the monitoring of enterprises of the Bank of Russia, in the fourth quarter of 2023, the capacity utilization of automobile manufacturers in the macro-region for the first time in the last 1.5 years has decreased somewhat. The companies surveyed in January noted a slight decrease in demand for their products and their output compared to the higher values observed in the autumn. In December, reduced demand was one of the factors behind the decline (seasonally adjusted) in the sales of Volga-Viat automobile manufacturers in both passenger and commercial segments," the new report of the Central Bank on the regional economy states.

But days earlier, in a similar report, the Central Bank's management stated: "there are no opportunities to expand the supply of goods and services at a pace sufficient to meet demand" (see "NG" dated 02/07.24).

And how should we now treat the statements of the Central Bank's leadership that the Russian economy is close to the limits of growth and an increase in the availability of credit will only have inflationary consequences? And how do these warnings from Central Bank officials about the risks of overheating the economy combine with complaints from enterprises about insufficient solvent demand from the population? Thus, the main obstacle to the development of milk producers in the Russian Federation is called limited domestic demand. Automakers are ready to produce more cars, but they cannot due to a reduction in effective demand (as stated in the latest report of the Central Bank).

"The underutilization of production capacities is directly caused by the deterioration of credit conditions, which resulted in a compression of working capital (up to half of which was formed at the expense of loans) and a drop in production. The same applies to hidden unemployment. In these conditions, the easing of monetary policy leads to an increase in production and supply of goods ahead of demand and a decrease in inflation. Conversely, an excessively tight monetary policy exacerbates the decline in volumes and the increase in production costs, which leads to an increase in inflation," says the Minister of the EAEU Sergey Glazyev. According to him, we have great opportunities for economic growth. "Capacity utilization barely reaches 60%. These are not only the old ones, but also the new ones introduced over the past five years. That is, our industry is working half-heartedly due to the fact that there is not enough working capital. In terms of supply, we can increase production by 30-40%. From the point of view of demand, after Western countries turned away from us, about a quarter of the market was freed up. These are huge opportunities for import substitution," Glazyev said in Yekaterinburg at a meeting with the heads of Ural enterprises in the spring of 2023.

Last June, the chairman of the Central Bank, Elvira Nabiullina, said that the Russian economy is not currently in the overheating phase, but the Central Bank sees such risks, they need to be paid attention to. According to her, overheating occurs "if demand grows faster than supply in a situation where GDP has already reached its potential." "The indicator of such overheating is inflation, when it becomes higher than the target level. Now we do not see and cannot say that the economy is overheating right now, but there are risks of such overheating, and we need to pay attention to them. That is why we are talking about pro–inflationary risks and factors," the head of the Central Bank said.

Meanwhile, the Russian government hopes for an expansion of external demand. The Russian economy remains open and ready for further integration into the global economy, Maxim Reshetnikov, head of the Ministry of Economic Development, said on Thursday. The first priority, according to him, is the formation of a common market for trade and investment. The volume of the market, "which is now open to us in the mode of free trade in goods, is 350 million people," Reshetnikov believes. The head of the Ministry of Economic Development said that negotiations are underway to conclude agreements on free trade zones (FTA) with the UAE, Egypt and Indonesia, and it was proposed to start negotiations on a FTA for Algeria. "By expanding the network of free trade zones with these countries, 700 million people should enter the market," the minister said. The second priority, according to him, is "creating favorable and predictable conditions for investments." "We are solving this problem with the help of international agreements on the promotion and mutual protection of investments, as well as agreements on free trade in services and on investments. They give investors the right to receive compensation in case of discriminatory actions of countries, access to international arbitration. Reshetnikov confirmed that Russia does not intend to refuse to participate in the World Trade Organization – "we do not have other negotiation and discussion platforms yet." "Yes, the WTO platform has become more of a discussion platform than a solution, but nevertheless we need to work there – and work closely," the minister stated.

Source: https://www.tks.ru/reviews/2024/02/09/04/