Russian Economy General News: #13

lancelot wrote:He also claims that South Korea can make 250 tanks a year when the number is closer to like 50.
https://en.wikipedia.org/wiki/K2_Black_Panther#Production
The best they did was 106 K2 tanks in two years. i.e. 53 tanks a year.
Japan is even worse at producing new tanks.
https://en.wikipedia.org/wiki/Type_10#Operators
The best they did was 14 Type 10 tanks in a single year.
But I guess even that is better than the US which produces ZERO new tanks a year.

I guess the real number is even less than 50, and a very good example is fulfilling the contract with Poland.
It is the only active contract pending at the moment, and take a look at the numbers.

Quoting a mythical numbers for the western MIC is just one more indicative how deluded one can be having not a single clue of how the industry works if combined with the business.

Germany can supply ONE Iris-T system a YEAR, and if asked kindly they can increase that up to TWO.
But nobody asked them, because that would mean additional investments to be made that needs to pay off.
And won't, as there will be no extra orders for t.
Amazing, isn't it?

One of the main points stressed today by Putin on "Russia Calling":

Russia's GDP grew by 3.6% in 2023 and by 4.1% in January-October 2024; growth is concentrated in manufacturing industries - this sector has added 8.1% over ten months, with the auto industry and mechanical engineering showing the fastest growth rates

The incredible rise of the most sanctioned country in the world. And fighting one of the biggest wars since World War II.

The Bank of Russia kept the key rate at 21%, by Alexandra Yudina for VZGLYAD. 12.20.2024.

The Central Bank of Russia has decided not to change the key rate and leave it at 21% per annum.

The Central Bank of Russia has decided not to change the key rate, keeping it at 21% per annum, which came as a surprise to financial analysts and experts.

The Central Bank announced that it would maintain the key rate at 21% per annum, RIA Novosti reports .

This decision came as a surprise to many experts, who expected a rate cut against the backdrop of stabilizing inflation and macroeconomic indicators.

Experts believed that the key rate would be raised to 23% per annum. However, they expect the rate cut cycle to begin in the third quarter of 2025.

According to their forecasts, by the end of 2025 the rate level could fall to 16-18%, although some analysts predict its level at 20-21%.

The day before, Putin expressed hope that the Central Bank’s decision would be balanced and would meet the requirements of the current time.

Let us recall that the head of the Bank of Russia Elvira Nabiullina announced a possible increase in the key rate in December, noting the influence of the exchange rate and high prices on inflation.

https://m.vz.ru/news/2024/12/20/1304596.html

Why the Central Bank is afraid of the economy's "overcooling", by Olga Samofalova for RiaNovosti. 12.23.2024.

The Bank of Russia continues to surprise the market. If in the past it made surprises in the form of a tougher rate increase, then this time it surprised, on the contrary, by not raising it. Although the market was sure of the opposite, because inflation continued to rise. Why did the Central Bank decide to change its game tactics?

The consensus forecast of analysts was that the rate would definitely be raised in December, immediately from 21% to 23%, and some analysts did not rule out an increase to 24-25%.

No one dared to assume that the rate would not be raised. Because neither inflation nor the growth of the Russian economy have stopped. Moreover, inflation continues to go up. And in previous times, this was the main reason for the Central Bank of the Russian Federation to raise the rate.

"We considered the main option to be raising the rate to 23% with a moderately tough signal. This was due, firstly, to the acceleration of inflation by the end of the year: as of December 16, accumulated inflation exceeded 9% with the October consensus forecast of the Central Bank of 8-8.5% by the end of the year. Secondly, to the increase in price expectations of enterprises and inflation expectations of the population. Thirdly, to the expected transfer of the November weakening of the ruble to prices," says Olga Belenkaya, head of the macroeconomic analysis department of FG Finam.

Why did the Bank of Russia keep the rate at the same level as before - 21%? The regulator shifted its focus from inflation to lending, which is showing a cooling. In November, retail lending actually stopped, and corporate lending began to slow down for the first time since the beginning of 2024. Next year, the Central Bank expects lending to continue to cool.

As for inflation, which has not yet slowed down, it needs time for the already high rate to have its effect. The Central Bank believes that prices are growing by inertia due to the fact that there was previously high credit activity, that the ruble was devalued earlier and, finally, budget injections into the economy have accumulated. However, in the coming months, inflation will begin to decline due to the 21% rate, which is already high, and due to the slowdown in lending, the regulator believes.

"The Central Bank's logic has changed significantly compared to previous meetings. There is an explanation for this," Belenkaya says. According to her, Elvira Nabiullina actually said at the last meeting that the increase in the key rate was "not predetermined" and that the turning point could be a slowdown in lending growth, but few paid attention to this because of rising inflation.

Now, Belenkaya explains,

The Central Bank is not focusing on the current economic situation, which it can no longer change, but on the future. The effect of a high rate is not immediately visible, but in 3-6 months, and it remains to be seen.

The effect of raising the key rate from 16% to 21% in the second half of 2024 will be fully reflected in the economy next year, Belenkaya says. This is what the Central Bank is counting on. They expect annual inflation to fall to 4% (and this is the main goal) in 2026.

In addition, the regulator was afraid of the negative consequences of the fact that it could inadvertently "over-squeeze" the rate with its rigidity. "Business is already concerned that the key rate is higher than 20%, and even higher rates on new market loans could lead to excessive "overcooling" of the economy or even a recession. The realization of credit risks due to the deterioration of the financial situation of borrowers also threatens banks. The Central Bank probably also took these risks into account," Olga Belenkaya believes.

“Perhaps the reason for the change in rhetoric is that the regulator fears a recession,” Ilya Fedorov, chief economist at BCS World of Investments, does not rule out.

The regulator is essentially balancing on the edge. On one side of the scale is the acceleration of inflation to double-digit values, when it is no longer possible to stop it. Which inevitably leads to devaluation, crisis and impoverishment of the population. Russia has already experienced this in modern history. "High and stable inflation leads to a rapid depreciation of savings, a rapid weakening of the national currency, and the impossibility of implementing investment activities. Such episodes occurred throughout most of the 1990s, as well as during the main crises of the 2000s and 2010s," says Vladimir Yevstifeyev, head of the analytical department at Zenit Bank.

If the regulator had not raised the rate this year, inflation would have been several times higher than the current one. “We calculated alternative scenarios, and if we, for example, had left the rate at the level it was from the fall of 2022 to the middle of last year – that is, 7.5%, then inflation would not have been just double-digit, it would have been much higher than 20%, and perhaps even 30%, because inflation expectations would have grown sharply, and most importantly, it would have continued to accelerate rapidly,” Nabiullina said at a press conference. This is why the rate hike has already worked, she believes.

Meanwhile, on the other side of the scale is a sharp cooling of the economy due to very high rates and very expensive credit money, which are killing business. In the construction sector, market participants are already sounding the alarm. Excessive rate increases also lead to an economic downturn and a crisis with unpleasant consequences. Therefore, stopping rate increases in time so as not to overdo it is also an important decision. Whether the Central Bank did the right thing on December 20 will become clear in a few months.

And the first important result will be summed up at the Central Bank meeting in February 2025. The regulator softened its rhetoric, but still left the possibility of raising the key rate there.

"The Central Bank indicates that it trusts the current slowdown in lending, which is why it decided not to raise the key rate in December. But if inflation continues to accelerate at the beginning of 2025, and lending again accelerates its growth rate, the Central Bank may resume raising the key rate," Evstifeev believes.

"The regulator made a bold assumption that the sharp rise in prices in November and December is temporary. The text of the press release does not contain any clear arguments in support of the decision to keep the rate at the current level, so the Bank of Russia, in our opinion, will consider the possibility of raising the "key" in February next year," notes Sergey Konygin, senior economist at the analytical department of the investment bank Sinara.

However, Vladimir Chernov from Freedom Finance Global expects the rate to remain at this level for at least three more months, so that the Central Bank can assess the effectiveness of the previous increase and additional inflationary restrictive measures. "Perhaps the Central Bank also realized that high inflation rates are not only due to the regulator's soft monetary policy, but even more so because of sanctions, since the logistics of all imported goods have become significantly more expensive, and the ruble has depreciated by about 10-15% - and all imported goods for Russians have become more expensive by about the same amount," Chernov believes. However, it is becoming difficult to predict the Central Bank's actions, so experts do not rule out any scenarios.

As for when the Central Bank might start cutting the rate, Fedorov from BCS World of Investments believes that the reduction will begin in the middle or end of the second quarter of 2025, after external (geopolitical) and internal inflation risks have become clear. “By the end of 2025, the rate, according to our expectations, will be reduced to 16% with inflation at 5–5.5% and near-zero economic growth. The forecast for the average annual rate has been reduced by 1 percentage point – to 19.5%,” Fedorov notes.

https://m.vz.ru/economy/2024/12/23/1304590.html

Russia is facing "sanction shock".
With most of the western companies out of the market now, and capital investment opportunities reduced - all the money stays in the economy.
It makes a very significant inflation impulse.
Supply shortages pushed the prices of some goods up.
Lack of manpower while the economy is booming pushes the salaries up.
They are facing a combination of events that generate inflation - every single one of those alone is a pressure, while combined ...

Supply shortages pushed the prices of some goods up. Lack of manpower while the economy is booming pushes the salaries up. They are facing a combination of events that generate inflation - every single one of those alone is a pressure, while combined ... wrote:

They overheated the economy? I read that they are even deliberately reducing economic growth because they have such a boom that causes the economy to lose and there are no workers.

Sort of.
This gives us a clear hint about the scale of money laundering schemes that are being operated by "western businesses".

There are loans through various programs were interest is very low. These are more of either government or private. In either case, companies reducing borrowing is because this is the time period where they start to look at repaying their debts. This is a cycle.

Plus there are various schemes that allow cheap loans for various reasons like import substitution and various other drives to boost the economy, in which case loans from banks become rather less attractive especially as interest rates and inflation are up.

The biggest one will be working with other countries who may be able to provide better loan options to private entities in Russia. For instance, if Chinese banks or Indian banks or what not would be willing to invest in Russia they could potentially operate that way. This is least ideal imo though.

Banks are a licence to produce money so allowing foreign banks in might force your own banks to be more competitive, but it would also lead to money going out of your economy too.

The other option is for the companies seek to open up manufacturing in these other countries like India, China, Belarus and Kazakhstan.

Isn't that what that guy developing that engine for their training aircraft do by setting up production in Germany?

Shifting production to other countries is what has led America to where they need a Trump to Make America Great Again by imposing tariffs to force US manufacturers to bring production back to the US of A...

You are trading one set of problems for a different and worse set of problems.

Russian producers should already have access to the markets of friendly countries... that should be how free trade works.

I don't think the answers are as easy as you suggest.

Russians will receive a new legal way to earn money in 2024, by Dmitry Skvortsov for VZGLYAD. 01.08.2025.

In 2024, a revolutionary change in the position of Russian financial authorities regarding the use of cryptocurrencies took place. A package of laws was adopted concerning digital currencies and activities related to their circulation and use. Against the backdrop of sanctions, bitcoins, ethers, etc. turned out to be a unique tool for generating income for both citizens and the entire state.

Until 2024, mining and use of digital currencies in the Russian Federation took place mostly outside the legal framework. Advanced citizens mined (produced using special computing machines) bitcoins (Bitcoin) or ethers (Ethereum) and sold them either to other individuals or converted them into dollars/euros on foreign cryptocurrency exchanges. And investors bought bitcoins and other similar instruments in the hope of their rapid growth or to conduct arbitrage transactions.

Soon, there were offers of services to include a small computing power of an individual user in a pool (this was more efficient for mining), the organizer of which took on the obligation to either transfer each user's share to his crypto wallet, or independently convert the mined and distribute the received currency among the pool participants. Reputable mining farms also appeared, requiring significant investments, but having no legal status.

Softening and legalization

For a long time, the Central Bank was categorically against the circulation of surrogate currencies in Russia (which, according to experts from the Central Bank of the Russian Federation, should include cryptocurrencies). At one time, there was even talk about the possibility of introducing criminal liability for the use of surrogate currencies in Russia, but then the rhetoric of representatives of the Russian financial authorities began to soften.

The beginning of the West's sanctions war against Russia, the disconnection of most Russian banks from the SWIFT system, the threat of secondary sanctions against banks in third countries that maintained cooperation with Russia, forced them to look for an effective means of circumventing these sanctions. Making payments in national currencies did not always solve this problem. A bank with dollar correspondent accounts is in any case transparent to American financial intelligence - and accepting payments for supplies to Russia arouses close interest and the threat of secondary sanctions.

This problem can be solved either through barter transactions (there are no payments, and it is impossible to track the financial trail of the transaction), or by conducting export-import payments through small regional banks that do not work with dollars and are therefore opaque to American control.

Finally, the third way is to use cryptocurrencies. This is because their circulation is technically completely different from the circulation of fiat currencies (such as the ruble, dollar, euro, yuan or any other currency issued by the state).

But in order to use cryptocurrencies in international settlements, Russia needed to adopt a whole series of laws. This was implemented in the summer of 2024. On August 8, Law No. 223-FZ "On Amendments to Certain Legislative Acts of the Russian Federation" (to a number of federal laws) was adopted.

Thus, the Central Bank was granted the powers of a regulatory body on issues of experimental legal regimes (and at first, international settlements in cryptocurrencies will be carried out within the framework of such regimes). The government received the right to introduce a ban on mining in certain regions of Russia (and in a number of regions, this has already been implemented since January 1 ). A ban was established on combining mining with activities related to the production, transmission, accounting and sale of electricity.

Changes concerning digital currency mining came into force on November 1, 2024. Amendments to the law on digital financial assets essentially legalize cryptocurrency mining activities in Russia. Legal entities and individual entrepreneurs now have the right to mine cryptocurrency, but only after they are included in a special register. Individuals will be able to mine without registering in the register, but they must not exceed the established energy consumption limits.

This immediately led to a significant increase in sales of mining farms (computing machines). In November, it was reported that the demand for the corresponding equipment in Russia had grown several times. The reason for this was the sharp increase in the cost of bitcoin.

Invisible payment

The main goal that served as an incentive to quickly implement legislative changes legalizing mining is to ensure international settlements. The threat of secondary sanctions affected banks in a number of countries - Russia's trading partners. And although the problems with China that arose were solved each time, a slowdown in bilateral trade occurred periodically.

To what extent can the use of cryptocurrencies help to avoid such situations? On the one hand, the blockchain system allows you to trace the path of bitcoin (or other cryptocurrency) from the moment it was created as a result of mining through all the crypto wallets in which it ended up. On the other hand, these crypto wallets are anonymous. Existing anti-money laundering systems allow you to identify suspicious wallets, which, however, in most cases still remain anonymous.

Thus, if a Russian importer mined cryptocurrency himself or bought it after the verification procedure showed that it was clean, no one will be able to establish not only the name of the company, but even the country where this crypto wallet is located. Well, unless information from the Russian registry leaks to the Americans.

Here it is important to understand that Russian importers will not be able to pay for imports from China directly with cryptocurrency. In China, cryptocurrency transactions were recognized as a form of money laundering in 2024. However, these restrictions do not apply to Hong Kong - and it will be possible to buy goods in China through Hong Kong.

It will be possible to pay for imports from India, the UAE, and Singapore with cryptocurrency. Iran will also be interested in receiving cryptocurrency for its exports to Russia. But not because of fear of secondary sanctions (Iran has long been disconnected from SWIFT, and it is too late for it to be afraid), but because of the lack of convertible currency in the country.

Hidden energy export

The Central Bank's tough position on preventing the use of cryptocurrencies within the country as a means of payment is quite understandable. If bitcoins and ethers take up part of the domestic settlements, the need for rubles as a means of payment will decrease. That is, an excess of rubles will form, which will increase inflationary pressure. And the use of cryptocurrency in foreign trade transactions will play against the dollar rather than against the ruble.

But the main motive for allowing crypto mining within the country is to encourage energy “exports.” At the moment, the possibilities for exporting electricity from Russia are limited either by infrastructure capabilities or by sanctions and geopolitical realities (the refusal of Russian electricity by Finland, the Baltic countries, and Ukraine).

And for cryptocurrency mining, there is enough excess generation within the country and the Internet, so that the mined can be transferred to any crypto exchange. There are no problems with generation in most regions of Russia. And selling bitcoins on a foreign crypto exchange will be equivalent to exporting the electricity spent on their mining.

But if InterRAO receives currency from physical export of electricity, sells it within the country and pays taxes on its income, then miners (as they worked before) did not pay anything. Only for electricity (and at a fairly low rate).

Legalization of mining is intended to create conditions when miners will also pay taxes on their activities, thereby sharing their earnings with their country. And only the first step has been taken so far. But given that Russia is currently in second place in terms of mining volumes (approximately 1 GW of capacity versus 2-3 GW in the US), this step had to be taken.

Thus, the legalization of mining that took place in 2024 brought benefits and income to both Russian citizens and the Russian state. And in 2025, this trend will only intensify.

https://m.vz.ru/economy/2025/1/8/1307306.html