Interfax: Klepach: Russia needs new measures to spur growth; current measures insufficient

MOSCOW. Dec 20 (Interfax) – Russia needs to enact new measures to spur economic growth since the measures that have already been approved are insufficient, Deputy Economic Development Minister Andrei Klepach said at a briefing in Moscow on Thursday.

“Those measures that have been approved are insufficient to accelerate growth. Therefore, I think that enactment of new measures is both inevitable and necessary. It is important that they produce results,” Klepach said.

However, he did not provide details when asked what additional measures the Economic Development Ministry will propose. “I’m not prepared to comment on this now. There is an order, there will be more orders. There is a plan, adopted by the government for measures aimed at accelerating growth, primarily touching on sectors of industry, not the whole economy. There will now be a State Council meeting and, apparently, there will be additional orders, already on a more comprehensive plan, encompassing and specifying actions in both sectors of industry and in other areas of the economy,” Klepach said.

He said that this year saw the “realization of the scenario of a pause in growth, that is the conservative scenario that we hoped it would be possible to avoid.” This year was disappointing because “it is a year of lost opportunities in terms of preventing negative trends in the economy, achieving an effect if not to accelerate growth then to prevent its slowdown,” Klepach said.

“It’s very important in these conditions, if this year was a year of lost opportunities, that next year does not also become a year of lost opportunities,” he added. He said that next year prices on world markets are unlikely to decline, but neither will there be significant growth. “Therefore, we need to learn to work more effectively and compete in conditions of stagnation or a sluggish world market situation and dramatically increased requirements for increasing efficiency inside the country,” Klepach said.

He recalled that when the budget and forecast were passed a year ago, the forecast “included certain measures aimed at increasing the affordability of loans and creating conditions for more rapid growth in lending to the real sector of the economy, particularly the industrial sector.” The forecast targeted lending growth of 18-21% in 2013, but “actually for the year, God willing, we’ll have 13% growth,” Klepach said. The forecast also assumed that infrastructure projects financed by the National Welfare Fund (NWF) would begin to be implemented this year already, he said.

“Now we will begin this implementation only next year, and even then it will take a certain amount of time to resolve legal, regulatory and organizational issues. And the main impact will probably be in 2015 rather than in 2014,” Klepach said.

Thirdly, the forecast factored in a different model for regulation of tariffs and assumed a “higher level of investment programs by natural monopolies in 2013 and particularly in 2014,” he said. In 2014, there will also be “challenges and problems – how to finally increase the affordability of loans, how to work out some sort of stable model, on one hand optimizing costs and increasing the efficiency of infrastructure companies’ operations, but so as to support investment demand, rather than reduce it considering the restrictions that have been adopted on tariffs,” Klepach said.

“There are also questions about getting projects actually working and generating demand in the economy, rather than just plans concerning the implementation of infrastructure projects with NWF money. There were also plans for investment of Pension Fund money in projects, both in 2013 and in 2014, in other words, essentially investment of a long-term financial resource,” Klepach said.

The Economic Development Ministry estimates that Russia’s GDP grew 1.3% year-on-year in the first eleven months of 2013. “So far there have not been any radical changes compared to the trends seen before this, in the first three quarters. The situation has not deteriorated and there have not been any significant changes for the better,” Klepach remarked on the economic situation in November.

“On the whole, so far the situation corresponds to the dynamics that we talked about, that is, GDP growth of 1.4% in 2013, meaning that December will be better than November. This all fits into the idea that the fourth quarter is a quarter of some revival,” Klepach said. Commenting on industrial production, which the Federal Statistics Service (Rosstat) reported slumped 0.1% in the eleven months, including 1.0% year-on-year in November, Klepach said his ministry has slightly different figures if data is adjusted for seasonal and calendar factors.

“Taking into account seasonal and calendar factors, we have a more positive picture than Rosstat. We believe that in November, after all, there wasn’t a decline, but on the contrary growth of 0.2%, while Rosstat reported a drop of 0.2%. Because the calendar factor plays a big role here, and we had one working day less than in November 2012 and three working days less than in October,” Klepach said.

“On the whole, the dynamics in industry are somewhat lower than we expected. In this sense, industry remains a sore spot. But here there is also a temporary effect, because essentially industry is being pulled down by dynamics in extractive sectors. Although year-on-year extractive sectors are demonstrating growth, taking into account adjustment for seasonal and calendar factors extractive sectors demonstrated a drop of 0.4% in November compared to October. In the area of electricity, gas and water supply, seasonally adjusted there was also a steep drop in November of 3.1%, because November was warm.

On the other hand, manufacturing sectors, which is more important, showed a plus – adjusted for seasonal and calendar factors they grew 1%, despite the fact that year-on-year manufacturing sectors demonstrated a decline,” Klepach said. He said that in November “consumer demand sectors, particularly the food industry, textile and garment production, showed a substantial plus, chemical production continues to grow fairly well.” “A negative dynamic was seen in construction, metallurgy, production of machinery and equipment. In other words, these are problems related to investment demand,” Klepach said.

“Nonetheless, November differs for the better from recent months in that a fairly significant positive jump was seen in production of electrical equipment, electronic and optical instruments, production of transport equipment,” Klepach said. “This is not a turnaround yet [in manufacturing], but it is a positive signal that industry has certain potential for improvement,” he said. November also saw a strong 4.5% year-on-year increase in retail sales and a 0.9% increase, adjusted for seasonal and calendar factors, compared to October, Klepach said.

“Retail sales grew 3.9% in January-November, while our forecast for the year is 3.8%. Apparently, in terms of consumer demand, we might end up higher for the year than our revised forecast,” Klepach said. He attributed the strong consumer demand to the “positive dynamic of real disposable incomes, which rose 0.7% compared to October, adjusted for seasonal and calendar factors.”

Commenting on investment demand, Klepach said: “Unfortunately, here there has not been any turnaround yet. While in October there was a jump upward, in November the picture is again negative. We estimate that, taking into seasonal and calendar factors, there was a 0.2% decline in investment.” Investment slumped 0.8% in the first eleven months of 2013.

“Therefore, it is still difficult to conquer zero [growth for the year]. Although I don’t rule out that there will be a revised picture on investment,” Klepach said.

Speaking about unemployment he said that in November, “despite the difficult situation in industry, negative dynamic in construction, unemployment even decreased slightly taking into account seasonal and calendar factors.” “Although survey data do not show this, Rosstat data show that unemployment in November, seasonally adjusted, was 5.5% compared to 5.6% in October. Since there is demand for labor, then economic activity is not dying out, it is continuing,” Klepach said.

“Therefore, overall so far, investment demand still remains the weak link in our economy, while consumer demand is probably even stronger than we expected,” Klepach said, summing up the economic situation in November.

[featured image is file photo]