Russia
BOFIT Weekly 6 • 6.2.2009
Russia Central bank tightens monetary stance to ease devaluation pressures on rouble. On Monday (Feb. 2), the Central Bank of Russia raised its refinancing rates. The last time the CBR increased these rates was at the end of November. The refinancing rates differ as to the quality of securities accepted as collateral. The highest-tier Lombard rates require the borrower to provide high-quality collateral, typically Russian state or central bank bonds. The oneday, seven-day, and 30-day Lombard rates were raised 0.75–1 percentage point to 11 %. In addition, the 3-month lending rate went up from 11 % to 11.25 %. Poorer quality collateral is accepted for such borrowing. The overnight and one-week repo rates were also hiked a percentage point to 11 %. In a repo swap, the bank agrees to sell securities to the central bank and then buy them back by a later date. Since autumn, the CBR began to accept a larger range of securities from banks to give them access to refinancing credit in the tight liquidity situation. Since Monday, the CBR has reduced the lending amounts available in its refinancing operations. According to the CBR, the measures were intended to bring down inflation and stabilise the exchange rate. January inflation was 13.4 % y-o-y. The rouble’s value continued to decline over the past week against its dollar-euro currency basket. In the past couple of days, however, the decline has slowed. The rouble is now close to the 41-rouble trading limit set two weeks ago by the CBR. On Thursday (Feb. 5), one unit of the currency basket bought 40.88 roubles, one euro 46.84 roubles and one dollar 36.01 roubles. Russian GDP growth down sharply in 2008. Rosstat preliminary figures show Russian total output increased last year 5.6 % (8.1 % in 2007). The value of total economic output was 41.5 trillion roubles (€1.1 trillion). Economic growth was again fuelled by robust consumption growth, even if it slowed to 9 % due to lower income growth. Investment growth fell to around 10 % in 2008, or about half of 2007 growth. The investment ratio to GDP was 22 %. The chill in demand on world commodity markets brought Russian export volume growth almost to a standstill. Import volume growth was up 18 % y-o-y. The sharp slowdown in investment growth was reflected in lower growth in industrial output and construction activity. Industrial output rose just 2 %. Oil production was 488 million tons, down nearly 1 % y-o-y. Natural gas production was up less than 2 % to 663 billion m3. Manufacturing growth slowed to 3 % and production contracted e.g. in the chemicals and metal industries. Electric-
Bank of Finland • Institute for Economies in Transition, BOFIT P.O. Box 160 • FI-00101 Helsinki Phone: +358 10 831 2268 • Email: [email protected] • Web: www.bof.fi/bofit
ity production rose 2 %. Construction overall grew 13 %, while housing construction increased less than 5 %. Growth in retail sales, supported by rising consumer demand, still declined slightly in 2008 to 13 %. Transport volumes rose nearly 1 %. Agricultural production stood out among core production sectors, up a brisk 10 % y-o-y after years of low growth. Real on-year change in GDP growth and imports, % 12
40
9
30
6
20
3
10
0
0 ‐10
‐3 GDP (left)
Imports (right)
‐20
‐6 1996
1998
2000
2002
2004
2006
2008
Source: Rosstat
Government moves ahead with long-term strategy for development of financial markets. The “2020” strategy, which has been under preparation since the beginning of last year, is intended to accelerate the evolution of the Russian economy over the next decade by improving the competitiveness of its financial markets. Russia’s securities markets remain underdeveloped and dysfunctional in many respects, so the 2020 strategy addresses needs to increase securities market volumes and transparency, develop market infrastructure, improve supervision and ease taxation. The strategy seeks to make Russia a strong independent financial centre ready to assume a greater role once the upheavals in the current international financial market structure subside. While Russia has drafted a number of bills in recent years aimed at improvements in securities trading, many large gaps remain. For example, Russian still lacks adequate rules on insider trading, rules for clearing securities trades and control of professional securities brokers. Legislation covering derivatives trading is still inadequate, as is protection of small investors. The 2020 strategy calls on the government to deal with package of 17 related bills this year. These include collateral and centralised clearing acts, as well as amendments to the acts on limited liability corporations and securities. Observers have generally praised the strategy, noting that it focuses on much-needed change. Once implemented, the strategy would signal a substantial advance in the evolution of Russia’s securities markets.
Editor-in-Chief Seija Lainela The information here is compiled and edited from a variety of sources. The Bank of Finland assumes no responsibility for the completeness or accuracy of the information.
BOFIT Weekly 6 • 6.2.2009
China China’s industrial production faltered again in January. The seasonally adjusted purchasing managers’ index (PMI) figure for January was 45.3. Thus, the situation in industry continued to deteriorate, albeit not as fast as in December or November, when PMI values were 41.2 and 38.8, respectively. The continuing weakness was clearly reflected in the core sub-indices for new orders, production and employment. The China Federation of Logistics & Purchasing (CFLP) compiles the PMI from several subindexes based on surveys of over 700 industrial firms. As a diffusion index, a PMI value below 50 indicates the majority of managers surveyed perceive business conditions in the current month to be worse than in the previous month. The PMI survey revealed that in recent months Chinese firms have sharply reduced their inventories of both finished goods and raw materials. This was most apparent for metal industry. Other data also found reductions in inventories. A separate survey of 500 Chinese firms in December and early January by the Japanese Nomura Holdings found that 60 % of surveyed companies had cut inventories to one or two months of both use and sales, down from typical levels of three to four months. Some observers have pointed to the recent drop in inventories and the mild rise in prices for iron and steel as an indication that Chinese economic growth could revive as soon as the first half of this year. More cautious forecasters dismiss the significance of changes in inventories, and claim that they don’t have as large impact on overall demand as they used to. Moreover, the impact of a decline in inventories is seen minor compared to the much larger and pervasive problem of excess capacity. 12-month industrial output growth (%) and PMI 30
65
Industrial output (left scale) PMI (right scale)
25
60
20
55
15
50
10
45
5
40
0
35 2005
2006
2007
2008
2009
Source: CEIC, Li & Fung Research Centre
Bank of Finland • Institute for Economies in Transition, BOFIT P.O. Box 160 • FI-00101 Helsinki Phone: +358 10 831 2268 • Email: [email protected] • Web: www.bof.fi/bofit
China posts surprisingly small 2008 budget deficit despite sharp spending increases. Preliminary data from the finance ministry show the realised budget deficit of China’s central government last year was just $16 billion, or 0.4 % of GDP. Rapid economic growth helped boost growth in budget revenues by nearly 20 %. Even so, budget spending grew faster (25 %), due largely to spending related to a spate of natural disasters. Budget expenditures ($900 billion) corresponded to nearly 21 % of GDP. Budget expenditures relative to GDP have grown considerably in recent years. The realised budget deficit was only about half the size of the official budget projection presented in March 2008. China will release its final budget figures later this spring in conjunction with the 2009 state budget. Official unemployment rate rises. Official figures show registered unemployed in China’s cities at the end of December represented 4.2 % of the labour force. At the end of 2007, the corresponding figure was 4.0 %. The last time China experienced a rise in unemployment was during the SARS epidemic of autumn 2003. The current rise in unemployment reflects deterioration of global economic conditions. Labour-intensive export businesses, in particular, have been forced to slash their payrolls. Officials expect the registered unemployment rate to reach 4.6 % this year, which would be the highest recorded official unemployment rate in China since 1980. Statistics on the official unemployment rate are deficient from several perspectives. Notably, the labour figures ignore rural residents and migrant workers. Moreover, urban dwellers do not necessarily gain anything from the system by reporting their employment status. Official estimates claim that 15 % of the migrant worker population, or about 20 million people, cannot find work at the moment. The Chinese Academy of Social Sciences (CASS) estimates overall unemployment reached almost 10 % at the end of 2008. China’s leadership takes the unemployment rate seriously as higher employment may translate into civil unrest. China’s grain production up for fifth year in a row. The National Bureau of Statistics reports grain production increased over 5 % in 2008. The record harvest was nearly 530 million tons. Meat production also rose. Pork production is slowly recovering from the 2006–2007 epidemic of blue ear disease. Rising consumer incomes have had a strong impact on the China’s meat-eating habits. To restrain the rise in food prices, the government heavily subsidises grain and meat production. Since about a third of China’s inflation rate is driven by food prices, higher domestic food production can diminish inflationary pressure on food prices and help restrain inflation overall. Editor-in-Chief Seija Lainela The information here is compiled and edited from a variety of sources. The Bank of Finland assumes no responsibility for the completeness or accuracy of the information.
Russia Central bank tightens monetary stance to ease devaluation pressures on rouble. On Monday (Feb. 2), the Central Bank of Russia raised its refinancing rates. The last time the CBR increased these rates was at the end of November. The refinancing rates differ as to the quality of securities accepted as collateral. The highest-tier Lombard rates require the borrower to provide high-quality collateral, typically Russian state or central bank bonds. The oneday, seven-day, and 30-day Lombard rates were raised 0.75–1 percentage point to 11 %. In addition, the 3-month lending rate went up from 11 % to 11.25 %. Poorer quality collateral is accepted for such borrowing. The overnight and one-week repo rates were also hiked a percentage point to 11 %. In a repo swap, the bank agrees to sell securities to the central bank and then buy them back by a later date. Since autumn, the CBR began to accept a larger range of securities from banks to give them access to refinancing credit in the tight liquidity situation. Since Monday, the CBR has reduced the lending amounts available in its refinancing operations. According to the CBR, the measures were intended to bring down inflation and stabilise the exchange rate. January inflation was 13.4 % y-o-y. The rouble’s value continued to decline over the past week against its dollar-euro currency basket. In the past couple of days, however, the decline has slowed. The rouble is now close to the 41-rouble trading limit set two weeks ago by the CBR. On Thursday (Feb. 5), one unit of the currency basket bought 40.88 roubles, one euro 46.84 roubles and one dollar 36.01 roubles. Russian GDP growth down sharply in 2008. Rosstat preliminary figures show Russian total output increased last year 5.6 % (8.1 % in 2007). The value of total economic output was 41.5 trillion roubles (€1.1 trillion). Economic growth was again fuelled by robust consumption growth, even if it slowed to 9 % due to lower income growth. Investment growth fell to around 10 % in 2008, or about half of 2007 growth. The investment ratio to GDP was 22 %. The chill in demand on world commodity markets brought Russian export volume growth almost to a standstill. Import volume growth was up 18 % y-o-y. The sharp slowdown in investment growth was reflected in lower growth in industrial output and construction activity. Industrial output rose just 2 %. Oil production was 488 million tons, down nearly 1 % y-o-y. Natural gas production was up less than 2 % to 663 billion m3. Manufacturing growth slowed to 3 % and production contracted e.g. in the chemicals and metal industries. Electric-
Bank of Finland • Institute for Economies in Transition, BOFIT P.O. Box 160 • FI-00101 Helsinki Phone: +358 10 831 2268 • Email: [email protected] • Web: www.bof.fi/bofit
ity production rose 2 %. Construction overall grew 13 %, while housing construction increased less than 5 %. Growth in retail sales, supported by rising consumer demand, still declined slightly in 2008 to 13 %. Transport volumes rose nearly 1 %. Agricultural production stood out among core production sectors, up a brisk 10 % y-o-y after years of low growth. Real on-year change in GDP growth and imports, % 12
40
9
30
6
20
3
10
0
0 ‐10
‐3 GDP (left)
Imports (right)
‐20
‐6 1996
1998
2000
2002
2004
2006
2008
Source: Rosstat
Government moves ahead with long-term strategy for development of financial markets. The “2020” strategy, which has been under preparation since the beginning of last year, is intended to accelerate the evolution of the Russian economy over the next decade by improving the competitiveness of its financial markets. Russia’s securities markets remain underdeveloped and dysfunctional in many respects, so the 2020 strategy addresses needs to increase securities market volumes and transparency, develop market infrastructure, improve supervision and ease taxation. The strategy seeks to make Russia a strong independent financial centre ready to assume a greater role once the upheavals in the current international financial market structure subside. While Russia has drafted a number of bills in recent years aimed at improvements in securities trading, many large gaps remain. For example, Russian still lacks adequate rules on insider trading, rules for clearing securities trades and control of professional securities brokers. Legislation covering derivatives trading is still inadequate, as is protection of small investors. The 2020 strategy calls on the government to deal with package of 17 related bills this year. These include collateral and centralised clearing acts, as well as amendments to the acts on limited liability corporations and securities. Observers have generally praised the strategy, noting that it focuses on much-needed change. Once implemented, the strategy would signal a substantial advance in the evolution of Russia’s securities markets.
Editor-in-Chief Seija Lainela The information here is compiled and edited from a variety of sources. The Bank of Finland assumes no responsibility for the completeness or accuracy of the information.
BOFIT Weekly 6 • 6.2.2009
China China’s industrial production faltered again in January. The seasonally adjusted purchasing managers’ index (PMI) figure for January was 45.3. Thus, the situation in industry continued to deteriorate, albeit not as fast as in December or November, when PMI values were 41.2 and 38.8, respectively. The continuing weakness was clearly reflected in the core sub-indices for new orders, production and employment. The China Federation of Logistics & Purchasing (CFLP) compiles the PMI from several subindexes based on surveys of over 700 industrial firms. As a diffusion index, a PMI value below 50 indicates the majority of managers surveyed perceive business conditions in the current month to be worse than in the previous month. The PMI survey revealed that in recent months Chinese firms have sharply reduced their inventories of both finished goods and raw materials. This was most apparent for metal industry. Other data also found reductions in inventories. A separate survey of 500 Chinese firms in December and early January by the Japanese Nomura Holdings found that 60 % of surveyed companies had cut inventories to one or two months of both use and sales, down from typical levels of three to four months. Some observers have pointed to the recent drop in inventories and the mild rise in prices for iron and steel as an indication that Chinese economic growth could revive as soon as the first half of this year. More cautious forecasters dismiss the significance of changes in inventories, and claim that they don’t have as large impact on overall demand as they used to. Moreover, the impact of a decline in inventories is seen minor compared to the much larger and pervasive problem of excess capacity. 12-month industrial output growth (%) and PMI 30
65
Industrial output (left scale) PMI (right scale)
25
60
20
55
15
50
10
45
5
40
0
35 2005
2006
2007
2008
2009
Source: CEIC, Li & Fung Research Centre
Bank of Finland • Institute for Economies in Transition, BOFIT P.O. Box 160 • FI-00101 Helsinki Phone: +358 10 831 2268 • Email: [email protected] • Web: www.bof.fi/bofit
China posts surprisingly small 2008 budget deficit despite sharp spending increases. Preliminary data from the finance ministry show the realised budget deficit of China’s central government last year was just $16 billion, or 0.4 % of GDP. Rapid economic growth helped boost growth in budget revenues by nearly 20 %. Even so, budget spending grew faster (25 %), due largely to spending related to a spate of natural disasters. Budget expenditures ($900 billion) corresponded to nearly 21 % of GDP. Budget expenditures relative to GDP have grown considerably in recent years. The realised budget deficit was only about half the size of the official budget projection presented in March 2008. China will release its final budget figures later this spring in conjunction with the 2009 state budget. Official unemployment rate rises. Official figures show registered unemployed in China’s cities at the end of December represented 4.2 % of the labour force. At the end of 2007, the corresponding figure was 4.0 %. The last time China experienced a rise in unemployment was during the SARS epidemic of autumn 2003. The current rise in unemployment reflects deterioration of global economic conditions. Labour-intensive export businesses, in particular, have been forced to slash their payrolls. Officials expect the registered unemployment rate to reach 4.6 % this year, which would be the highest recorded official unemployment rate in China since 1980. Statistics on the official unemployment rate are deficient from several perspectives. Notably, the labour figures ignore rural residents and migrant workers. Moreover, urban dwellers do not necessarily gain anything from the system by reporting their employment status. Official estimates claim that 15 % of the migrant worker population, or about 20 million people, cannot find work at the moment. The Chinese Academy of Social Sciences (CASS) estimates overall unemployment reached almost 10 % at the end of 2008. China’s leadership takes the unemployment rate seriously as higher employment may translate into civil unrest. China’s grain production up for fifth year in a row. The National Bureau of Statistics reports grain production increased over 5 % in 2008. The record harvest was nearly 530 million tons. Meat production also rose. Pork production is slowly recovering from the 2006–2007 epidemic of blue ear disease. Rising consumer incomes have had a strong impact on the China’s meat-eating habits. To restrain the rise in food prices, the government heavily subsidises grain and meat production. Since about a third of China’s inflation rate is driven by food prices, higher domestic food production can diminish inflationary pressure on food prices and help restrain inflation overall. Editor-in-Chief Seija Lainela The information here is compiled and edited from a variety of sources. The Bank of Finland assumes no responsibility for the completeness or accuracy of the information.
