Russian Economy General News: #12

caveat emptor wrote:

GarryB wrote:@caveat emptor

I agree with your post except the last line...

If they want a weaker ruble then why would they want to increase imports... a weaker ruble will make imports even less desirable because they will be more expensive.

Raising imports will point to establishing new supply chains for the economy. For example, in case of Lada Granta, they'll have to bring back ABS, power steering and whatever else is missing atm. They can't replace and start to produce everything , especially, not in short and mid term. Raising imports will point to that. Also, it would weaken ruble somewhat due to less positive current account.
There are good and bad imports. Electronics, machinery, medications, components for industry, some food will have to be  imported. Normalised Russian imports before the war amounted to about $400 bn. Currently, they are very depressed. As they are finding alternatives, raising imports will point to that.

Problem is as well how do you ensure quality/price Russian products and services in the long run if you don't have imports for competition purposes. You might develop exports so that Russian products compete with foreign ones in other countries. For this you might weaken the ruble, or gain market through market penetration strategies, which most probably they shall pursue if they keep with strengthened ruble for inflation control and dedollarization aims.

caveat emptor wrote:
Raising imports will point to establishing new supply chains for the economy. For example, in case of Lada Granta, they'll have to bring back ABS, power steering and whatever else is missing atm. They can't replace and start to produce everything , especially, not in short and mid term. Raising imports will point to that. Also, it would weaken ruble somewhat due to less positive current account.
There are good and bad imports. Electronics, machinery, medications, components for industry, some food will have to be  imported. Normalised Russian imports before the war amounted to about $400 bn. Currently, they are very depressed. As they are finding alternatives, raising imports will point to that.

The serious question is, how much is it driven by the import replacement versus post-covid mud.
The chain of supply was disrupted globally, not only in Russia.
I was waiting for some of my supplies for more than 6 months due to the situation in Malesia.
Now there is a circus running in Shanghai, making half of China paralyzed for more than 3 months. Factories reopened only a few weeks ago.
The same applied to the automotive industry, a year ago there was no supply of new build cars. BMW was forced to take out the latest media packs from the offer, as they have no electronic parts for it, all made in China. Car dealers were buying used cars from the market, only to offer them back, as they had no supply either.
Last year was a massive reorganization of the supply chain, globally. Tons of businesses just bankrupted, and factories were closed due to a lack of workforce. Whole industry branches were paralyzed.
If there is ever a good time to make a supply chain revolt, it is now, as one don't have any influence for part of the factors anyway.
Lada Granta is not the best example, because it is like that by purpose, and de facto any missing part can be easily replaced by either Chinese or Indian substitute.

This means that future real interest rates will go down to practically nil:

Finance Ministry plans to increase public debt by 7 trillion rubles by 2025, 21.06.2022.

This year, the amount of domestic liabilities will increase by 800 billion rubles.

The Ministry of Finance plans to increase the public debt from 20.9 trillion rubles. by the end of 2021 to 28 trillion in 2025, i.e. by 7 trillion. This is stated in the draft of the main directions of the budgetary, tax and customs tariff policy of the department for the next three years (Vedomosti has it). In 2022, according to the ministry, the total amount of sovereign liabilities, including state guarantees, will amount to 22.5 trillion rubles, of which 17.4 trillion is internal debt, and 5.1 trillion is external. According to the latest data from the Ministry of Finance, as of June 1, 2022, the domestic debt was 16.6 trillion rubles, the external debt was $56.5 billion, i.e., about 3.5 trillion rubles. at the dollar exchange rate of the Moscow Exchange on this date at 61.3 rubles / $.

In 2023, the public debt will increase to 23.5 trillion rubles, including domestic debt to 18.4 trillion, and external debt will remain at the level of 5.1 trillion. In 2024, the figure will increase to 25.2 trillion rubles. (with the amount of obligations on internal and external public debt, respectively, 19.9 trillion and 5.3 trillion rubles). In 2025, the public debt will grow by another 3 trillion and exceed 28 trillion rubles. (22.5 trillion - internal, 5.5 trillion - external). Relative to GDP, the public debt indicator in 2022–2024 will not change and will remain at the level of 16%. In 2025, the share will increase to 16.7%.

The Ministry of Finance has suspended the placement of OFZ since March 9 "due to the deterioration of the conditions for borrowing." Obligations on previously placed government bonds will be fulfilled in full and on time, the Ministry of Finance assured. On June 16, Finance Minister Anton Siluanov, on the sidelines of the St. Petersburg International Economic Forum, did not rule out the possibility of entering the domestic borrowing market this year.

Rising costs

The cost of servicing the public debt in 2022 reached 1.4 trillion rubles, Siluanov said on June 20 at a meeting of the State Duma Committee on Budget and Taxes. “Debt servicing costs are no longer small, they doubled, taking into account previous pandemic borrowings <...> before the pandemic, they were exactly half as much,” the minister said. By 2025, the cost of servicing the public debt will rise to 2 trillion rubles, “even if we carry out moderate operations in the financial market, it will exceed the 2 trillion level,” Siluanov noted.

calm plans

At present, the volume of the OFZ market is 15.7 trillion rubles. An increase of almost 50% over three years looks like a rather ambitious task, said Yulia Dubinina, Deputy Head of the Bonds Department of Veles Capital Investment Company. But if we take into account that at the beginning of 2020 the OFZ volume was about 9 trillion, then the announced increase does not look like something extraordinary. In the conditions of foreign markets de facto closed for borrowing, the only option to increase the state debt is the OFZ, she is sure. Now there is an increased demand for ruble-denominated assets and, as a result, a sharp decline in bond yields. Under such conditions, the exit of the Ministry of Finance with primary placements looks logical and timely, the expert concluded.

https://www.vedomosti.ru/economics/articles/2022/06/20/927485-minfin-uvelichit-gosdolg

A further dedollarization of currency deposits in Russian banks might be obtained through the establishment of a ruble futures market at MOEX.

You are too fascinated on Russia buying Chinese crap rather than attempting to make their own. Which makes me question if you are actually Chinese.

I would rather the money stays in Russia to fund their own development of said technologies so they aren't reliant on anyone. You forget, Russia and China did go to war with each other back in 69. Plus Russia and Belarus already has experience in the field of making the equipment to make semiconductors.

Spare us your nonsense about it please. We know you think russia cannot be smart enough to develop said tech. They themselves think otherwise hence the ministry of industry and trades financial assistance to the project.

And you seem to ignore the fact ministry of industry and trade thinks you are wrong. Or are you more smart than them? They are the ones shelling out the money.

Shall I repost the link to you or are you just going to keep ignoring it?

I read enough within Russian papers and articles where none of the professionals are that interested in relying on Russia for very reasons I pointed out. If you were Russian you would have noticed this too.

lancelot wrote:

sepheronx wrote:And you seem to ignore the fact ministry of industry and trade thinks you are wrong. Or are you more smart than them? They are the ones shelling out the money.
Shall I repost the link to you or are you just going to keep ignoring it?

If the Ministry of Industry and Trade knew what they were doing the Russian semi industry wouldn't have taken over a decade to build a 90nm fab when the industry standard is 2 years. And that was buying everything off the market. And now you expect them to make the tools and everything in roughly the same time?

Well, them along with Planar and two very established universities with experience seem to think so.

So, your qualifications over them is?

I'm rather sick of no name assholes on the internet who don't operate in the field think they know better than the experts in the field in these countries. Yes, I know you got a degree in it. But so do the people working on such equipment and the research. Might I add, probably far more qualified than you or I will ever be. So let then do the work.

No, they aren't gonna rely on China. Stop shilling it and move on.

lancelot wrote:
Yeah. And the Indians thought they could make a jet engine. Still waiting.

My qualifications are that I have an undergraduate degree in Computer Engineering. So at least I know the basics of the field.
I could design a digital circuit with TTL chips and assemble it and did it at university. Can you?
At university I had to design my own computer language and wrote my own compiler. Can you?
I still would not pretend I know one iota about process engineering to do that. But I know enough about it to know what is realistic and what is pure fantasy.

So still lower qualifications than the people you proclaim to know more than who are going into this with previous experience?

So since you havent actually made a working chip, or haven't actually made anything used by anyone or any institution, so then why should we believe you over the people who have?

Denis Manturov has a degree in sociology. I kind of like the guy as a person. But he isn't a technical expert by a long shot.
Yet he has been put in everything including as one of the directors of UAC.

If DM was in the Chinese government he would be cleaning toilets. Take Xi Jinping. He is a chemical engineer by training. His predecessor, Hu Jintao, he was a civil engineer who worked on hydropower plant construction.

Zelenograd Nanotechnology Center is the one in charge of this.  Are you saying that everyone in China including yourself is far more qualified on this than the people there?

Here is the organizations website: https://en.zntc.ru/

Edit: I would like to apologize as I am not trying to underestimate your knowledge or your achievements, but you are 1 guy vs an entire organization (i am not talking of the ministry of industry and trade but ZNTC) of people who has the experience, made various products, and plenty of experience. When they think they can do it, I tend to trust them over someone else who doesn't have the same experience or credentials. And it isn't just 1 organization doing this either. Its teams.

I think China will be used as a temporary stop gap till they get their own equipment up and running.

kvs wrote:People need to wait a bit longer than 4 months to see the changes.   Russia could do with Taiwan and offshore production before.
Now it has to bring all the pieces together that have been idling in "academic mode" to production level.   I do not think we will
have to wait for 2030 to see the results.  

Remember:
People said Russia couldn't build IC's at all.  They ended up doing it regardless. Maybe not newest tech but you know.
People said Russia wouldn't be able to have thermal imagers.  They designed and make their own microbolometers which are used.  Very similar to that of the Catherine XP imagers in terms of resolution.
People said Russia doesnt make their own panels at all and here we go, Rostec through Cyclone (same company who makes their own Microbolometers) made their own OLED microdisplays for VR headsets.
People said Russia couldn't make their own GaN or let alone GaAS modules, and yet they have accomplished that too.  I believe the GaN modules up to 50W as well.

You see, there is just a common theme - Russia cannot and will not and should not so instead should rely on others.  That has so far worked out not in favor of Russia and forced Russia in the end to produce on their own.

Why make your own microbolometers when you can buy from China?  But Russia did after all build their own instead of relying on China.  Why make own GaN or GaAS modules when they can buy the T/R transistors from China? Instead, they made their own.

Because, these technologies are rather very important and necessary for Russias sovereignty.  And their eyesight is now on semiconductors as a whole from sand to chip.  And rightly so.  Because as the old saying goes in Russia "Russia's allies are its Navy and Army".

No more, so less: for the first time in the history of the Russian Federation, deflation is expected in June, by Inna Grigorieva for Izvestia. 28.06.2022.

How much prices will decrease and whether they will decrease all three summer months.

For the first time in the history of modern Russia, according to the results of June, there may be deflation - a decrease in prices for goods and services. This was stated by analysts of banks and financial companies interviewed by Izvestia. Prior to this, prices fell only in July and August - and, as a rule, this was due to the arrival of a new crop. Now, experts name the main reasons not only for the seasonal reduction in prices for fruits and vegetables, but also problems with imports, a sharp appreciation of the ruble and low demand from the population. The cost of goods in monthly terms can be reduced within 0.5% . A number of experts do not rule out that this summer prices will decrease for all three months. However, there is no cause for special joy: such a long deflation does not speak of the “health” of the economy.

Price fall

Seven out of ten experts of financial companies surveyed by Izvestia expect a decrease in prices for goods and services in June in monthly terms . The largest reduction in the cost of products is expected in BCS World of Investments. According to expert Yevgeny Mironyuk, the reduction may be within 0.5% . According to the results of the first summer month, the managing director of the NRA rating service Sergey Grishunin expects prices to decrease to 0.4%.

“ There are three reasons: the seasonal decrease in the cost of fruits and vegetables, the strengthening of the ruble exchange rate from 120 rubles per dollar to the current 52–53, and, most importantly, the reduction in aggregate demand ,” he explained.

Deflation caused by a reduction in aggregate demand is extremely unstable and does not indicate the "health" of the economy, but, on the contrary, its "disease", Sergei Grishunin emphasized.

A continuous decline in prices is fixed from week to week from the end of May to mid-June , Natalia Milchakova, a leading analyst at Freedom Finance, drew attention. Most likely, by the end of June there will be deflation from -0.1 to about -0.3%, she expects.

From the beginning of the month to June 17, deflation amounted to 0.26%, with a decrease in the consumer price index recorded for three weeks in a row, and if we take into account the weekly pause with zero price changes from May 21 to 27, then five weeks, said the head of the FG macroeconomic analysis department " Finam" Olga Belenkaya. Against this background , deflation by the end of June is quite possible , she stated.

The situation, of course, is atypical and is associated with a number of factors : strengthening of the ruble exchange rate from absolute lows in March to highs since 2015, reduction in effective demand, temporary saturation of consumers after rush purchases at the end of February - March, — Olga Belenkaya explained.

According to Rosstat, from June 11 to June 17, prices fell most of all for granulated sugar (by 2%), eggs (by 0.6%), milk (by 0.4%), buckwheat (by 0.3%), sausages, small sausages, cottage cheese, dry milk formulas for baby food (by 0.2%), pork, sausages, vodka (by 0.1%).

If deflation in June in monthly terms really occurs, then this will be the first case in the history of Russia of a price reduction in the first summer month . According to Rosstat statistics since 1991, the smallest increase in the cost of goods and services in June occurred in 2019 - 0.04%. Prior to this, the lowest growth was in June 1998 - 0.08%.

The press service of the Ministry of Economic Development did not respond to Izvestia's request whether the ministry expected deflation in June. Earlier, Minister of Economic Development Maxim Reshetnikov called deflation in the first month of summer likely . According to Rosstat, in May 2022 versus December 2021, inflation in Russia was 11.8%. In annual terms, prices rose by 17.1% in May.

Vacation

In the history of Russia since 1991, there has never been a deflation for three summer months in a row , according to Rosstat data. For two months in a row - in July and August - prices fell in 2011 . Then in the second summer month the cost of goods and services fell by 0.01%, and in the third by 0.24%.

However, a number of analysts interviewed by Izvestia do not exclude that in 2022 there will be deflation for three months in a row: from June to August.

We assume that the moderate deflationary trend will continue in July and August against the backdrop of a seasonal decline in prices for fruits and vegetables due to the arrival of a new crop . In addition, with regard to non-food products, the significant strengthening of the ruble, in our opinion, offsets the growth of retailers' logistics costs, - said Grigory Zhirnov, chief economist at VTB My Investments.

The expert added: against the backdrop of suppressed consumer demand, this may lead to some reduction in prices for non-food products with the development of parallel imports.

“As a result , in July-August we can see monthly deflation at the level of 0.2–0.5% ,” predicted Grigory Zhirnov.

In July and August, deflation could increase to 0.5-0.6% on a monthly basis , says Sergei Grishunin from the NRA. According to him, the fact of price reduction will be considered by the Board of Directors of the Central Bank at the next meeting on the key rate on July 22. And the expert did not rule out a reduction in the key to 8.5–9% from the current 9.5%.

In July, two scenarios are possible, believes Yevgeny Mironyuk from BCS World of Investments. The first is that the government takes the side of the Central Bank and does not attempt a non-market targeted ruble exchange rate. In this case, there will be near-zero inflation in July, he believes. Secondly, the authorities accept the position of the government, announced at the SPIEF by First Deputy Prime Minister Andrey Belousov (work on returning the exchange rate to 70-80 rubles / $), and take active measures of a non-market nature. In this case, inflation for July may be in the range of 0.4-0.8%.

Olga Belenkaya from Finam believes that there will be no deflation in July. This will be affected by the annual indexation of housing and communal services tariffs , which traditionally takes place in the second summer month.

Natalya Milchakova from Freedom Finance and Vladimir Evstifeev, head of the analytical department of Zenit Bank, believe that deflation may last until September inclusive.

In annual terms, prices in Russia are not falling, and there are no serious drivers that would ensure this in 2022–2023, said Dmitry Kulikov, Director of the ACRA Sovereign and Regional Ratings Group. In the spring, Russia experienced a rather sharp inflationary shock, the rise in prices has since slowed down, but in most reasonable scenarios, it should not go into a steady decline, the analyst believes.

According to the forecast of the Ministry of Economic Development, inflation in Russia in 2022 will be 17%.

https://iz.ru/1356474/inna-grigoreva/ne-bolshe-tak-menshe-vpervye-v-istorii-rf-po-itogam-iiunia-ozhidaetsia-defliatciia

The Ministry of Finance expects a 40% increase in income from personal income tax for the rich in 2023, 28.06.2022.

Over the next three years, an additional 2 percentage points of tax will bring almost 400 billion to the budget.

The Ministry of Finance expects an increase in federal budget revenues from an increased personal income tax rate of up to 15% for citizens with high incomes in 2023–2025. by 40%, follows from the budget projections of the ministry. According to the department, in 2023 the treasury will receive 117.5 billion rubles from personal income tax for the rich, while the current budget law predicts 84 billion rubles. In 2024, revenues in the amount of 127.6 billion rubles are planned. instead of the previously expected 89.8 billion rubles. (growth by 42%), in 2025 - 138.1 billion rubles. instead of 95.8 billion rubles. (growth by 44%). Thus, in total, over three years, the ministry expects to collect more than 383 billion rubles.

https://www.vedomosti.ru/economics/articles/2022/06/28/928938-minfin-ndfl-bogatih

https://tass.ru/ekonomika/15067399

MOSCOW, 29 June. /TASS/. The floating exchange rate of the ruble makes it possible for the economy to adapt to changing conditions, and attempts to achieve the pre-crisis exchange rate of the ruble will make it artificial, said Elvira Nabiullina, head of the Bank of Russia, speaking at the RUIE congress.

"We adhere to a floating rate policy, because it is the floating rate that allows the economy to adapt to changing conditions. And attempts to maintain the rate that was under the old conditions is an artificial rate. Or then there will be a sharp devaluation, as we already had," she said.

Nabiullina stressed that a managed exchange rate sharply reduces the independence of the ongoing monetary policy. "When we begin to manage the exchange rate, the independence, independence of monetary policy is sharply reduced," the head of the regulator said.