In One Word, Recovering: An Interview with Iikka Korhonen

Joining us today for Bear Market Brief’s relaunch (and our first interview) is Iikka Korhonen, head of the Bank of Finland Institute for Economies in Transition, otherwise known as BOFIT. You can follow him on twitter here.

iikkakorhonen5121

Q: Hi Iikka. We’re excited to be featuring you here! Russia’s economy has certainly had an interesting couple of years. How would you say it’s doing today? And if you had to describe its current state in one word, what would it be?

The Russian economy is slowly recovering from the recent recession/depression, but recovery is clearly slower than e.g. after 2009.

 In one word: Recovering.

Q: There’s been a lot of talk about Russia’s growth model – namely, that cash from oil and gas sales is no longer sufficient to drive Russia’s development – and how it might be revamped or otherwise updated. In doing so, officials hope to match the global average growth rate in the coming years. Do you think that target is feasible? If so, how, and if not, what is preventing it?

That target is very ambitious, just given Russia’s demographic challenges. To match global GDP growth, Russia’s investment growth would need to accelerate a lot, and growth in productivity should also pick up. I think probability of these two things happening is small.

Investments started to decline (not just grow more slowly) already in the beginning of 2013. Russian companies and Russian investors saw better risk-return combinations elsewhere. This comes back to the very familiar complaints about business environment etc. Now investments are picking up, but from lower level.                                                        

Q: Are there any particular indicators/signposts you are tracking (other than overall growth) or think are important as proxies for Russia’s overall economic performance, i.e. car sales, consumer trends? What are they telling us?

I always first check price of crude oil. It basically determines Russia’s terms of trade, external value of the ruble and to a great extent federal tax intake. With the current oil price level budget deficit this year will be relatively small, and future expenditure cuts are therefore also smaller.

Q: Here at Bear Market Brief, we are big fans of charts and graphics. Do you have a recent favorite you could share that is telling of Russia’s economy? Why is it interesting to you?

I am glad Rosstat has now released new seasonally adjusted quarterly national accounts. It tells e.g. about that drop in investment I mentioned earlier. Also, it is clear that currently growth is driven by private demand, both consumption and investment.

Q: Last question: having been in the field some time, any favorite quirky or weird anecdotes – be that a story or datapoint – about Russia’s economy?

Yeah… back in 2014 when the US and EU (and Japan and Canada etc.) had introduced sanctions on Russia for invading Crimea and Eastern Ukraine, there were often statements from Russia saying Europeans were not very smart, giving up Russian markets while the US was increasing its exports there. And this is what Russian statistics showed, recording a massive increase in imports from the US in the second quarter of 2014. Funny thing was that US export numbers did not show a similar jump. There were some planes in exported from the US to Russia in the first half of 2014, but nothing on that kind of scale… And when we looked what was being imported, it was in the category of ‘classified’. So, what happened? Dunno. There are always differences between mirror statistics, but usually the differences are pretty stable (FOB/CIF etc.), and the two indicators move in the same direction…

Thank you so much for joining!

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