Russian capitalism pays well!

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Russian capitalism pays well!

Post by piston » Mon Jun 18, 2007 9:39 pm

Moscow can finally claim to have won a gold medal, among all major international cities in 2007, that of the most expensive place to live in! One wonders how 95% of the locals feel about such an achievement, however, as Russians can hardly be viewed as leading the world in terms of income per capita. Strange way to sell capitalism to former communists, if you ask me....

World's most expensive cities 2007
1. Moscow
2. London
3. Seoul
4. Tokyo
5. Hong Kong
6. Copenhagen
7. Geneva
8. Osaka
9. Zurich
10. Oslo
11. Milan
12. St. Petersburg (Russia)
13. Paris
14. Singapore
15. New York City
16. Dublin
17. Tel Aviv
18. Rome
19. Vienna
20. Beijing

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Post by Haydnseek » Mon Jun 18, 2007 10:02 pm

I suppose, in the short run, the fact that Russians are seeing their living standards rise rapidly diverts them from worrying about Putin's increasingly authoritarian rule. In the long run, however, a rising middle class tends to counter-balance the power of government. Lots of people end up holding a bit of real power of their own.

Russia's booming economy

Jun 18th 2007
From The Economist Intelligence Unit ViewsWire

It's not about just oil and gas

Russian economic growth hit a six-year high of 7.9% year on year in the first quarter, propelled by strong growth in construction, manufacturing and trade. The result is particularly impressive in light of the small contribution made by oil and gas. Although economic growth is likely to ease during the rest of the year, robust domestic demand may ensure that the full-year rate does not slow appreciably from the 6.7% outturn seen in 2006.

State statistics agency RosStat released full first-quarter GDP data on June 14th. The main factors behind the 7.9% headline growth figure were a 23.2% rise in construction, an 11.8% expansion in manufacturing and a 9.1% increase in trade. Large gains were also registered for hotels and restaurants (13.9%), the wholesale and retail trade (9.1%), financial intermediation (9.9%) and transport and communication (7.9%). In the year-earlier period, GDP growth was 5% and in the fourth quarter of 2006 it was 7.8%.

Base-period effects partly explain the recent strong showing, as the first quarter of 2006 was by some distance the weakest of the year. The 2006/07 Russian winter was the warmest since records began in 1879, according to Moscow’s weather service. This particularly benefited the construction sector.

Saving and spending

Two themes permeate the data. First, investment is very strong and this is powering economic growth. Fixed capital investment soared by 20.1% year on year in January-March 2007, according to estimates from the Ministry of Economic Development and Trade, compared with just 5.7% growth during the year-earlier period.

Second, household consumption is buoyant; it played a stronger role than investment in the 11.6% increase in domestic demand recorded year on year in the first quarter of 2007. With real disposable incomes up by 13%, private consumption rose by 12.7% year on year in January-March, according to the economic development ministry's estimates. This helped to fuel a 13.6% rise in retail sales and a 7.9% increase in the sales of services to the population. Strong domestic demand is also reflected in further rapid growth in imports of goods and services. These were up by 36.8% year on year in January-March 2007; exports, by contrast, rose by 5.3%, with energy exporters still struggling to increase production volumes.

Improving access to consumer credit is also helping to fuel demand. Domestic credit rose by 46.4% year on year in 2006 and continued to expand in the first quarter of 2007. The central bank reports a 53.7% rise in the value of rouble credit in 2006, with foreign-currency loans up by a more modest 29.3%. Loans to individuals recorded the fastest growth, on account of rapidly rising consumer credit. Loans to individuals rose by 75% in 2006, or more than twice as much as the 38.6% increase in corporate credit. The rapid rise in lending to individuals comes from a very low base, and is expected to continue, particularly as the government's emphasis on housing will push up the currently low demand for mortgages.

Home grown

Strong domestic demand is proving a boon for a number of manufacturing sectors. The machinery and equipment sector increased its output by a particularly strong 26% year on year in the first quarter of 2007, with particularly solid growth in output of machinery and equipment used in housing construction and roadbuilding (including an approximately 70% year-on-year rise in output of bulldozers and cranes in March). Rising investment also explained much of the increase in output of electrical machinery and equipment, with demand for office and computing equipment surging. Consumer demand is also playing a role, as underlined by a sharp increase in the production of televisions.

Amidst this strong growth, the oil and gas industry--for years the economy’s mainstay--is struggling. Natural gas output rose by just 0.3% year on year during the first quarter of 2007, with independents faring little better the state monopolist Gazprom. Oil output rose by 4.2% over the same period, primarily owing to favourable weather conditions. Preliminary data for output growth in April show a return to more modest 1.8% year-on-year growth, or somewhat below the 2.6% increase in output recorded for 2006 as a whole.

Too fast to last

In the absence of a more vigorous performance from oil and gas, can this pace of GDP growth be sustained? The momentum behind the expansion of construction, manufacturing and a clutch of service-related sectors is certainly promising, and strong domestic demand will continue to drive the economy in 2007-08. However, base effects will have a less favourable impact in the rest of the year, as GDP growth averaged over 7% in the final three quarters of 2006, compared with 5% growth in the first. Moreover, buoyant consumer demand will continue to fuel strong import growth and as a result net trade will exert an increasing drag on GDP growth.

As a result, full-year GDP growth this year is likely to be within the official government forecast of 6.5-7%. Faster economic growth is unlikely while energy output growth remains sluggish and while Russia’s large-scale investment needs are not--even now--being fully met. A range of problems in the business environment and competitiveness-eroding real rouble appreciation are further obstacles in the path of Russia’s economy. Still, in the context of the near stagnation of hydrocarbons output, Russia’s growth performance is surprisingly robust and well above the long-term trend rate. ... id=9354403
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Post by piston » Mon Jun 18, 2007 10:13 pm

All of this is very encouraging from the point of view of the economist with a "growth" oriented perspective. However, these data do not explain the $4000. a month two-bedroom apartments and the $25 for a single CD. Growth is also known to be fast in certain areas of North America and, yet, it does not translate into such a high cost of living as to deprive most residents of a livable space and of more tangible rewards than a growing diet of Big Mac's (which is one of the cheap products one can aspire to consume more in Moscow). Let's hope you are right and that, in Moscow, along with Beijing, an incredibly outrageous cost of living will not stiffle wage-earners from becoming part of an expanding middle class. If US history is at all useful, however, we do know that some periods of "growth," such as the Gilded Age of raw capitalism, were not particularly conducive to the significant promotion of working classes into a new middle class.
In the eyes of those lovers of perfection, a work is never finished—a word that for them has no sense—but abandoned....(Paul Valéry)

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Post by Corlyss_D » Mon Jun 18, 2007 11:20 pm

Haydnseek wrote:I suppose, in the short run, the fact that Russians are seeing their living standards rise rapidly diverts them from worrying about Putin's increasingly authoritarian rule.
Probably true. Yeltsin scared the bejezzus out of them by impoverishing them in the name of freedom and capitalism. Left a very bad taste for both. Stephen Cohen the Russia expert has claimed for years that Putin's goal was re-nationalizing all the energy production and will do the same to Russia's mineral wealth, which is vast. He's well on the road to doing so. The collision of a wealthier middle class and authoritarian rule is in the future for Russia eventually. Given Russia's past, I'm not ready to bet on the middle class - the communists killed all the smart ones.
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