Page 21 - bne_newspaper_August_10_2018

Opinion
August 10, 2018 www.intellinews.com I Page 21
Russian growth is stymied by a crisis of confidence
Ben Aris in Berlin
Russia’s economy is doing fairly well but
what is holding it back from faster growth is a crisis of confidence amongst its businessmen: corruption and red tape are problems, but it is the increasingly predatory nature of the state-owned enterprises that make some businessmen wary of taking the kind of risks needed to fuel faster growth. The default attitude is to make certain
of your existing business and not stick your head above the parapet.
The Rosstat Business Confidence survey shows an aggregate improvement over the last two years as the economic recovery gets underway. The index has risen from a low of -5 index points in December 2017 to -2 in March where it has remained since then. The index averaged -3.23 from 2005 until 2018, reaching an all time high of 7 index points in the midst of the boom years in July 2007, but then fell to a record low of -20 in December 2008 during the global crash.
However, small businesses are more vulnerable and this is also the sector Russia’s growth should be coming from.
The sentiment index for small business measured by Alfa-Bank has fallen hard recently to -27 index points — on a par with its level
in November 2016 in the midst of the “silent crisis.” The all time low for this index was set in November 2015 when Alfa’s SME confidence index fell to -38 index points.
Uncertainty about the future is holding back Russia's economic development
This plunge in confidence is mirrored in the last industrial production and IHS Markit Russia Manufacturing Purchasing Managers (PMI) indices, which have also both been falling in the last three months, despite the rising incomes and moderate economic growth.
Most SMEs expect a deterioration in the economic situation in the country and predict a decline
in the purchasing power of the population, Alfa Bank explains. The worries are prompted by the government’s recent decision to hike VAT from 18% to 20% — the first time the government of President Vladimir Putin has directly increased the burden on the population during his 18 years in office.
At the same time the Central Bank of Russia (CBR) focus on controlling inflation has made
life for business harder too. Despite a string of cuts, the monetary policy rate remains very high at 7.25% and the central bank is expected to cut rates only one more time this year — if at all. Given inflation remains at record lows levels of 2.5% the CBR’s ultra conservative monetary policy means Russia has real interest rates of around 4%, which is extremely high by international standards and makes it expensive to borrow money.
The difficulty and reluctance to borrow are also visible in the banking statistics. Retail lending has taken off over the last year and has been growing so fast that the central bank recently