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Conditions in Moscow Point to an Improving Economy

Stable economic conditions in Russia's capital are consistent with government projections of an end to recession in the last quarter and economic growth in 2016

  • Alexander Mercouris reports from his recent trip to Moscow
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This post first appeared on Russia Insider

I have recently returned from a week’s trip to Moscow and I will record briefly my necessarily anecdotal impressions of the economic situation.

Compared to the situation I saw in Moscow in February and March, there are clear signs of stabilisation.  

The worst of the inflation seems to be over. 

The all-too-evident beggars that were visible in February and March have disappeared. While some of them might have been cleared away from the city by the police --- something that undoubtedly happens in Moscow --- previous experience suggests that this only has a limited effect and that in times of real hardship they quickly seep back. Their total disappearance suggests that the pressure of inflation on people at the lower end of the income scale has abated.  

Summer is a quiet period in Moscow and one person told me that it seemed quieter than usual this year -- which could suggest a continuing recession.  

However there were no obvious signs of stress on the high streets --- e.g., large numbers of closed or empty shops --- and none of the signs one associates with periods of severe crisis, such as I saw for example during recent visits to places like Athens and Helsinki or such as I remember from Moscow in the 1990s -- e.g., rowdy youths, uncollected street litter, aggressive graffiti, etc. Moscow remains what it has now been for some time, a clean, orderly and graffiti free place.

I found the food shops full of produce. On the subject of the great cheese debate, Charles Bausman, the editor of Russia Insider and my generous host, offered me a range of Russian cheeses all of which were perfectly edible and some of which were excellent.

In one important respect economic activity continues at a scorching pace. Moscow is undergoing a massive make-over, with streets and sidewalks being repaired and repaved all over the city, parks laid out and improved, old buildings cleaned and restored, and new construction, especially in the suburbs, continuing at full tilt. To someone accustomed to the leisurely pace with which such things are done in Britain, the sheer pace and speed of work is exhilarating, even if it is sometimes inconvenient, with both sidewalks of a street for example being repaired at the same time, forcing pedestrians to walk with the traffic.

These of course are all anecdotal impressions. However they are consistent with the government’s latest economic projections, with the Economics Ministry now predicting a contraction of no more than 2.8% by year end, and more than 2% growth in 2016.

Is there anything that might delay or prevent this recovery? Oil prices have recently softened --- a natural consequence of a glut --- and they may soften further if as is now widely expected the US and British central banks raise interest rates in the next few months.  

As oil prices have softened the ruble has weakened. Unless however there is a total oil price collapse on the scale of last year’s, which few are now predicting, this is unlikely to have a significant impact.  

As Constantin Gurdgiev has pointed out there has been a steady improvement in Russia’s financial position with sovereign debt down from $57 billion last year to just $35 billion and aggregate foreign debt (both public and private) now standing at $560 billion as opposed to $730 billion a year ago. Meanwhile the Central Bank’s foreign currency reserves have stabilised at $360 billion.

All this suggests a country that is methodically improving its position as it prepares itself for a period of growth. As I have written previously in light of the oil price collapse the recession is necessary to achieve a rebalancing, and that seems to be what is happening.

There is usually a lag between the picture shown by statistics and sentiment on the ground. Based on what I saw in Moscow and the government’s projections, the worst period of the recession has passed.

One important caveat must be mentioned. As Russians constantly say, Moscow is not Russia and it might be that conditions outside Moscow are harsher.  

The point has force but can be exaggerated and Moscow is anyway so important to the Russian economy that good conditions there would tend to point to good conditions in other places.  

I am planning a trip to Perm in September, which should make it possible for me to compare the situation there.

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