Austin wrote:kvs , sepheronx , A longish article for your reference , do comment
2016 Prognosis: Another Tough Start for Russia Before Return to Growth
First part of it was already off to a bad start:
However, the structure of the budget is also a bet. The military spending is a drain on the economy that cant be sustained for more than a year without change. Likewise, the enshrining of a 3% deficit and the reluctance to increase taxes or reduce subsidies to state-owned enterprises means the government is hoping that oil will recover to an average of $50 in 2016.
Military industrial complex of Russia comprises of Russias industrial strength of roughly 20%:
Russia's defense industry currently employs 2.5-3 million workers, or 20% of manufacturing jobs.
So that is 2.5 - 3 million workers. Let us say that they are paid roughly average wage of 35,000 Rubles per month. That would indicate that 13% of that is: 4550 rubles. Now multiply that per month per person:
3,000,000 x 4550 rubles = 13,650,000,000 Rubles per month. In USD terms for those who may not know about its value is: $186,986,301.37 per month in terms of just income tax.
Now lets say they cut back on funding for military. What will happen? Well, companies will clearly reduce workforce + benefits in order to upkeep profit margins. But what about the other industries? Well, Russian tanks, airplanes and ships require metals, plastics, electronics, etc that come from Russian sources. So that is other industries as well (metallurgy industries do not fall under military industrial complex) will also lose out. Imagine how many of those workers would also be laid off.
But what about the industries themselves? Let us not forget, these companies also have profit margines and also pay corporate taxes. Remove that, even more revenue will be lost.
As Pogosyan said, for every Ruble is invested in aerospace, at least 3 rubles are created. This falls under the various other enterprises in the MiC. You think if Uralvagonzavod didn't have all those orders for tanks, upgrades, and such, could afford all the other civil projects they are creating? Probably not. As we have seen what happened to Omsk plant with no contracts for the T-80 tanks. The plant is pretty much none existent now. This is a lot of money that would be lost. A lot of workers out of a job and a drastic increase
in social service costs in order to keep these people off the streets begging for change. Then, all the import substitution industries will also lose out as the biggest consumer for domestic components are the military industrial complex itself (blame the soviet union for this as it has been an issue for forever). I do agree that the industries need to also get involved in the civil sector like Uralvagonzavod has done, but not everyone could do this and on top of that, would it work? Would they be competitive? In order to do so, they will need the starting financial input in order to invest in production of other goods.
Agriculture has also been a stellar story in 2015 and will continue to improve in 2016. And the crunch is forcing a rapid consolidation in organised retail and banking in particular; the Central Bank of Russia (CBR) closed a record 100 banks in 2015 and will continue until it has reduced the number from the current 700 odd to around 300.
Sitation is needed. Where did this come from? Did CBR say this? That said, if Russians and others think this is horror, then they should come there way to Canada where our banks are very few:
This also includes Credit Unions, which I do not think Russia has. And yet, we are considered a stable economic country (which is a joke actually). So how many banks in Russia are both none performing and or involved in illegal activities? Already one guy, head of a sports department, is seeking asylum in another country because he and his partner(s) were caught with illicit activity. How many of these banks were liabilities?
The economic outlook in 2016 will be largely determined by what happens to two factors: can the CBR cut rates down into single digits, which is a function of what will happen with inflation, and where will oil prices settle?
Then CBR is at fault and this proves it. As well, oil prices no longer really matter that much besides currency valuation on the exchange rate, since oil only accounts for 9% of the Russian GDP.
In previous years, Russia had domestic consumption to fall back on to bolster growth. But falling real incomes already led to retail turnover contracting more quickly than other parts of the economy. This is a trend that is likely to continue, unless there is a recovery in consumer borrowing (see below).
Russia's 2000-2008 consumption growth boom was based on income growth of about 10% a year in real terms – far ahead of both inflation and productivity gains, and super-charged by retail lending. But that came at the expense of squeezing corporate profits and companies have run out of space to keep increasing pay at above-inflation rates.
This part is pure bullshit as KVS has pointed out the valuation of average Russian wages from the years of 2000 to now, and you will notice that the times before, Russian average wage (accounting for inflation of then vs now) was still less than what it is now, even after the inflation valuation. People are spending less because they are doing what was being told to them by the CBR - tighten your belt. Which was a stupid move as domestic consumers account for 80% of Russia's economy.
But here is another point to be made - How many of these products not being purchased now, were simply imported products and resold at rates that would indicate profit for the stores? There is a reason why foreign brands have dropped significantly in sales compared to their Russian counterpart. Funny enough, in the accounting for domestic consumption rate, imported goods are also included.
The article is quite long. Some good points and some cringe worthy points that really isn't a factor but added in anyway. Yes, Russian industrial output is steadily growing and Russians will spend again (as they cannot "not" spend forever). But also said, as mentioned once before on sdelanounas - it isn't necessarily that sales have dropped. On the contrary, sales have increased (hence the industrial output increase). It is just that costs of the goods now vs then are different and that products do not cost nearly as much as average spender is spending and wholesales and or discount stores compared to before:
X5 Retail Group sees its sales up by 28.3% y-o-y in Q3 2015
X5 Retail Group, a prominent Russian grocery retailer, increased its sales revenues by 28.3% to RUB 195bn (€2.7bn) in Q3 2015, compared to the same period in 2014. In turn, in January-September 2015, X5 reported sales revenues of RUB 575.7bn (€8bn), or a 27.6% y-o-y growth. The company’s like-for-like sales grew by 13.1% in Q3 2015 and by 15.2% in Q1-Q3 2015, year on year.
According to X5, the retailer’s discounters had the highest contribution to total sales revenues in January-September 2015, as the Pyaterochka discount chain, which added 1,006 new stores net since the beginning of the year, saw its sales revenues increased by 35%, year on year, totalling RUB 418.2bn (€5.8bn).
Overall, in the first nine months of 2015, X5 added 1,029 new stores net in Russia, including 541 new outlets in Q3 alone. Therefore, as of 30 September 2015, the retailer operated 6,512 stores with a total retail area of 3,079,670 m2.