IMF predicts upturn for Russian economy after 3.4% fall this year
Courtney Weaver in Moscow
The Russian economy is set to contract by 3.4 per cent this year but will rebound in 2016, posting 0.2 per cent growth, the International Monetary Fund said on Thursday.
Ernesto Ramirez Rigo, the head of a three-month-long IMF mission to Russia, said the fund had revised upward its outlook for Russian economic growth and inflation on the back of improved economic data and the recent strengthening of the rouble.
“The authorities’ measures and the anti-crisis package have helped to stabilise the situation and along with that has come a more stable currency. And obviously with that stability has come a stronger confidence.”
The fund said it now expected Russian inflation to fall from its current level of about 16 per cent to 12.5 per cent by the end of the year.
The improved forecast echoes brighter predictions for the Russian economy from both the Moscow authorities and independent economists.
Last week, Russia’s Federal Statistics Service reported that the Russian economy had contracted just 1.9 per cent in the first three months of 2015 — a smaller drop than expected.
The rouble has also rebounded in recent weeks. After weakening to as much as 80 roubles to the dollar last December, the currency has now recovered back to 50 roubles to the US dollar, and is continuing to strengthen.
Mr Ramirez Rigo said the rouble had been bound to experience some volatility after the Russian central bank switched to an inflation-targeting regime and allowed the rouble to free-float with limited intervention.
The decision to essentially abandon exchange controls was among a series of measures, also including a bank recapitalisation programme, that the Russian central bank took last year to stabilise the currency and financial sector following the introduction of sanctions by western governments against Moscow, a fall in the value of the rouble and the oil price plunge. The country’s foreign reserves have fallen from $500bn at the end of 2013 to the current level of just over $360bn.
In its report, the IMF praised the central bank and the financial authorities and said that the move to a free floating currency was initially unsettling for the rouble but has ultimately proved beneficial.
“It’s not unusual for a country when it changes exchange rate regimes from a fixed system to a floating exchange regime with inflation targeting to experience certain volatility — or certainly more than in the past.”
Despite the rosier outlook, both the IMF and other economists have warned that a further drop in the oil price, or renewed violence in eastern Ukraine could alter the picture.
It is also unlikely that Russia will return to its pre-crisis growth levels given its dependence on oil, the IMF said.
“Within this outlook there are significant risks mainly posed by the oil prices, which clearly for Russia are very important, and the geopolitical tensions. But at the same time these are mitigated by large coffers,” Mr Ramirez Rigo said.
The IMF said it expected the Russian economy to grow in the medium term at an annual rate of 1.5 per cent, a reflection of Russia’s structural dependence on the oil price.
“It’s fair to say we all know investment should be faster, labour growth is not very dynamic and at the same time productivity growth has been lagging now for a few years . . . These drags on growth are all structural in nature,” Mr Ramirez Rigo said.
http://www.independent.mk/
Bosnia and Herzegovina to Take Over Council of Europe Presidency May 18, 2015, Monday
The 125th meeting of the Committee of Foreign Ministers of the Council of Europe, will be held on Tuesday in Brussels, whereas Bosnia and Herzegovina is set to officially take over the chairmanship of the Paneuropean organization. Foreign ministers of 47 member states of the Council of Europe will attend the meeting in Brussels. Report on current chairmanship of Belgium Council will submit the head of Belgian diplomacy Didier Reynders, while Bosnian Foreign Minister Igor Crnadak will present the priorities of the future six-month BiH presidency with the organization.
JCB Billionaire Bamford Says EU Exit Could Benefit UK
Anthony Bamford, chairman of construction equipment maker JCB Service, said the U.K. could survive “peacefully and sensibly” outside the European Union and would benefit from being able to negotiate as a single country.
The comments from one of the country’s most senior industrialists are at odds with the general campaign of support for continued EU membership from the country’s business lobby, including the Confederation of British Industry. Closely-held JCB, founded by Bamford’s father, is the biggest digger-maker in Europe with sales of 2.51 billion pounds ($3.9 billion) last year.
In an interview with the BBC on Sunday, Bamford said some of the warnings about an exit were overdone. “We are the fifth-or sixth-largest economy in the world. We could exist on our own – peacefully and sensibly,” he said.
Leaving the bloc would allow the U.K. to “negotiate as our country rather than being one of 28 nations,” he said.
Prime Minister David Cameron has promised an “in-out” referendum on EU membership by the end of 2017, although some business leaders want one sooner to avoid uncertainty. Bank of England governor Mark Carney called last week for the government to act with “appropriate speed” on the vote.
The CBI has asked its members to campaign for Britain to remain within a “reformed EU,” with Cameron preparing for tough negotiations with European partners over issues such as migrant worker rights.
In response to Bamford’s comments, Peter Rogers, chief executive of support services provider Babcock International Group Plc, said in a phone interview Monday that only companies “with limited product ranges and limited ambition” would prosper outside the EU.
Deutsche Bank AG is studying the potential impact of Britain’s exit from the European Union on the firm’s business in the country and weighing options that may include moving activities to its home nation.
Germany’s biggest bank this month formed a working group that comprises senior executives from Deutsche Bank’s strategy, risk and U.K. management teams, a spokesman for the lender said late Monday. The panel is in an early stage of scenario planning and no decisions have been made.
Prime Minister David Cameron, whose Conservative Party won a surprise majority in the May 7 election, has promised a referendum on EU membership by the end of 2017. Bank of England Governor Mark Carney called last week for the government to act with “appropriate speed” on the vote. The Confederation of British Industry, part of the country’s business lobby, asked members to campaign for Britain to remain within a “reformed EU.”
Deutsche Bank has had a presence in Britain since 1873 and employs 9,000 people in the country. Other foreign lenders with a large U.K. presence, including Goldman Sachs Group Inc., JPMorgan Chase & Co., Bank of America Corp., BNP Paribas SA and UBS Group AG, haven’t begun formal contingency planning for the referendum, the Financial Times said in a report on Deutsche Bank earlier on Monday.
Deutsche Bank fires warning shot over UK vote on EU exit
Martin Arnold, Banking Editor
Deutsche Bank is reviewing whether to move chunks of its large British operations to Germany if the UK leaves the EU, underlining the potential fallout in the City of London in the event of “Brexit”.
The biggest German lender by assets, which employs 9,000 people in the UK, is the first big bank to start formally examining the consequences of a British referendum on EU membership, which is due in the next two years.
The move is seen by rivals in the industry as an early attempt to sway the debate in favour of the UK staying in the EU. Most big financial services groups are supporters of the status quo and are likely to speak up about the risks of the referendum for the financial sector, just as they did before last year’s Scottish independence vote.
“I think the banks will be more vocal about the risks than they were on the Scottish referendum,” said a UK banking executive. “This could be an early sign of them gearing up.”
It comes as HSBC is undertaking a review of whether to move its domicile out of the UK because of the growing burden of tax and regulation in the country.
Deutsche has established a working group, including senior executives from its risk, strategy, UK management and research teams, to plan for what a potential EU exit would mean for its presence in the country.
The working group, reporting to the management board, will look at whether it would be better to repatriate some activities to the eurozone — most probably to Germany — in the event of an EU exit.
The German bank has been in the UK since 1873 and much of its investment banking operation is based in London, as well as an office in Birmingham.
A spokesman for Deutsche said clients had recently approached the bank looking for advice on the consequences of a UK exit from the EU, but the working group was separate from that.
Other foreign banks with large UK operations, including Goldman Sachs, JPMorgan Chase, Bank of America, BNP Paribas and UBS, said they had not launched a formal contingency planning process for the EU referendum.
“Tell me what contingency arrangements can possibly be made,” said a senior executive at a US bank. “The process of disentangling the UK from the EU will take five years and I have no idea on what basis that will be done.”
Several of the big US banks, including Citigroup and Morgan Stanley, have previously said they think Dublin is the most likely alternative to London if they decide to move operations out of the UK.
London hosts more than 250 foreign banks, many of which have based their main European subsidiaries in the UK capital and gained an automatic passport to operate across the other 27 countries in the EU single market for wholesale financial services.
If the UK left the EU, senior bankers worry that Britain would be unable to negotiate the same passporting rights for its financial services industry. If these were lost, it would force many corporate and investment banking operations to leave the UK.
According to the Treasury, the financial industry provided 1.4m jobs and paid £27.5bn in income tax and national insurance in 2011-12, or 12 per cent of the total.
JCB, the UK construction equipment company, on Monday dismissed concerns about the impact on business if the country voted to leave the EU, saying it would not make a “blind bit of difference” to trading with Europe.
Global energy subsidies fuel climate change, says IMF study
Shawn Donnan in Washington
Governments around the world will subsidise the cost of oil, gas and coal to the tune of $5.3tn this year, fuelling pollution and climate change as they misallocate the equivalent of what is spent globally on public health, according to a new study.
The estimate published on Monday by economists at the International Monetary Fund represents their calculation of the gap between what businesses and consumers pay for energy and the “true cost” if environmental and health effects are factored in.
It amounts to a clarion call for higher taxes on energy and therefore higher energy prices for consumers at a time when much of the global economy remains in a fragile recovery.
The $5.3tn “true cost” of government energy subsidies that the IMF team arrived at is equivalent to 6.5 per cent of global economic output. It is also more than twice the $1.9tn cost calculated by IMF researchers just two years ago. At the time the fund itself called that estimate “staggering”.
Almost the entire difference between the old and the new estimate is based on a radical re-accounting of what the study says are the real environmental costs of energy subsidies. It also amounts to a significant shake-up of the argument the IMF and others have made against the energy subsidies that have eaten up huge portions of government budgets in emerging economies such as India and Indonesia.
In the past economists have argued that energy subsidies were a waste of precious fiscal resources that often benefited the rich more than the poor. In the new study the IMF has made mostly an environmental argument and laid much of the blame on the world’s biggest economies.
China, according to the IMF study, was by the far the biggest subsidy culprit, accounting for $2.3tn — or more than 40 per cent — of the total thanks to its heavy reliance on coal and widespread air pollution. The US will spend the equivalent of $699bn this year, or 13 per cent, while the EU will account for another $330bn in subsidies, or 6 per cent of the total.
“These estimates are shocking … They have global relevance,” Benedict Clements and Vitor Gaspar, two senior IMF officials, wrote in a blog post introducing the study.
What IMF economists had discovered, they said, was “one of the largest negative externalities [or economic side effects] ever estimated”. At 6.5 per cent of global economic output it was also more than the 6 per cent of global GDP that the World Health Organisation says governments spend on public health each year, they said.
Were the subsidies to be eliminated this year they would raise government revenues round the world by $2.9tn, cut global CO2 emissions by more than 20 per cent and reduce the estimated 1m people who die premature deaths from air pollution by more than half. They would also raise “global economic welfare” by $1.8tn, or 2.2 per cent of GDP.
British economist, Nicholas Stern, author of the UK government’s influential 2006 review on the economics of climate change, called the IMF analysis “very important” and said it “shatters the myth that fossil fuels are cheap by showing just how huge their real costs are”.
He also said the IMF calculations were “conservative” as they only took into account some of the environmental costs. “A more complete estimate of the costs due to climate change would show the implicit subsidies for fossil fuels are much bigger even than this report suggests,” he said.
Because of the way they were measured, the IMF economists’ estimates are likely to provoke intense debate and be disputed by some.
If environmental costs and the impact of oil-friendly tax rates were not included the actual global cost of “pre-tax” subsidies round the world would go down to $333bn this year, the IMF economists said, thanks largely to lower oil prices.
To arrive at their far larger $5.3tn “post-tax” estimate for subsidies this year, the economists added in the estimated costs of things such as health problems from air pollution and climate change.
More than half the total for 2015, or $2.7tn, came from an estimate of the cost of “local pollution”, while a further $1.3tn was attributed to the price of global warming and $967bn apportioned to other local factors. The final $333bn represents the gap between what consumers pay and international supply costs.
