Russia – a modest recovery after a more limited slowdown?

13 January, 2021

Also Russia was – and still is – sharply hit by covid-19. For this reason, nobody should be surprised that Russian GDP has shrunk in 2020, probably by 3 ½ % – 4 % (will be published on February 3). This annual fall of GDP looks, however less dramatic than in most other European countries.

But how strong will a Russian rebound of GDP growth turn out to be – hopefully already in 2021? More than the generally expected growth rate of 2.5 – 3% which may be even less than predicted or possible EU growth? The development of covid-19 cases/vaccinations and GDP growth of the EU and China will play an important role in the Russian growth context for the year to come – but also the future political relations between the Biden administration and Russia.

In 2020, April and May were shocking months when GDP growth declined by 9.5 and by 8.9 % (yoy). During the following months, GDP drops stayed at around 4 %; the latest available number showed a decline by 3.7 % in November 2020 (yes, the Russian Ministry of Economic Development publishes monthly GDP numbers).

Slight signs of recovery and a recommendation

At the end of 2020, there were signs of a slight recovery in Russian industry when comparing with previous months but not yet when relating to the development one year earlier. Retail sales recovered visibly from late spring to the end of summer but have been stagnating again in the past few months (mom). A new and indicating number for consumer confidence during Q4 will be published on January 18.

As a major reason for concern remains the development of fixed investments, last year clearly under the level of 2010 (like, for example, Brazil). This negative investment trend must be reversed if Russia ever should become able to enter a promising structural trend of its growth potential. A better investment performance could also lead to more diversification of products, also of those for exports in order to decrease the dependence on exports of energy (commodity) products.

Finally, I recommend my readers to regularly follow the illuminating weekly reports of the Finnish BOFIT Institute (The Bank of Finland Institute for Emerging Economies) which is linked to the central bank of Finland (Bank of Finland). BOFIT also prepares interesting forecasts on the Russian (and Chinese) economy https://www.bofit.fi/en/publications/

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

Back to Start Page

More good news from China than usual – in which areas and for what reasons?

8 December, 2020

Following the Chinese press, there is currently an increasing accumulation of positive news – at least according to my own interpretation or feeling.

Thinkable reasons for the frequent positive reporting

There may be different reasons for all the positive reports, such as – pointing with the eyes of the political leadership (without ranking) – at

1)  a successful management of the corona crisis – also for the economy

2)  the successful RCEP agreement on (gradual) free trade, driven by China

3)  the obvious possibilities of improved ties to other Asian countries

4)  the strong high-tech development, particularly of IT but also the moon landing

5)  the official end of poverty, and particularly

6)  meeting the marketing needs of the Communist Party (CP) for the celebration of the 100 year anniversary of its foundation in 1921.

More examples could be mentioned. In each of these six examples, one can find strategic objectives, both in the short and the longer run. Contrary to most other nations in the world, China manages to apply both short-term and long-term thinking simultaneously.

I have wondered for a long time why this is the case and found two probable reasons for this. The first one may be linked to China’s Confucian roots. The second one can be explained by China’s authoritarian political system, meaning that a democratically elected government by nature is more short-sighted – very much in line with the research of Nobel Prize winner James Buchanan who focused on politicians’ major driving force: to do everything to be re-elected.

Recent positive contributions to the anniversary particularly important

Getting back to the initially mentioned examples of currently even more positive reporting than usual by Chinese media, more detailed exemplifying may be added.

Ad 1)  Looking into the official corona numbers, China had been very successful in fighting covid-19, also in absolute terms much better than, for example, Sweden. We know, of course, that China locked down the country very drastically – and particularly the city of Wuhan. However, since China’s history of transparency and statistical trustworthiness hardly had been encouraging during the years, there is no chance of judging the accuracy of the previously reported numbers. The total official numbers could be roughly correct, slightly wrong or very wrong. However, at least in the past two or three quarters, Chinese corona numbers should have developed more correctly. If not, digital sources would have informed the rest of the world.

Ad 2)  The free trade agreement RCEP between 13 Asian countries plus Australia and New Zeeland a few weeks ago made the Chinese very proud. This was a strategic masterpiece by China’s political leaders who recognized the great chance of a major cross-border trade deal after the withdrawal of the United States and President Trump from the Trans-Pacific Partnership (TPP) in January 2017, based on Trump’s misleading dogma of “America first”. This unwise decision made China to act and to outsmart the United States. RCEP will certainly be presented as an outstanding example of great international recognition for the People’s Republic.

Ad 3)  China is, of course, the leading country in the RCEP area with its totally 2.2 billion people population. This position will increase China’s influence both regionally and globally – ceteris paribus at the expense of United States and Europe. Recently, China, Japan and South Korea were described as the main driving forces for the RCEP agreement – a position that all three countries regard as favorable, de facto meaning a further strengthening of China in especially East Asia. A good example for the Chinese leadership to explain successful international cooperation and influential progress – particularly via media – can be found, for example, in https://www.chinadaily.com.cn/a/202012/01/WS5fc5d8fba31024ad0ba991ad.html.

Ad 4)  In recent years, CP leader and President of China, Xi Jinping, could be noted many times when addressing the decisive importance of technological progress,  positive changes in the value-added chain and quality improvements, see below https://www.chinadaily.com.cn/a/202012/02/WS5fc6c3eaa31024ad0ba992b0.html. Without major improvements in these areas, China has no change to replace its non-competitive products and exports – and, consequently, create better conditions for the economic, social and environmental future. Positive news that currently are spread among many others are excellent international IT rankings and what officials call the “leapfrog development” of IT, the recent moon landing not to forget.

Ad 5)  China has recently officially declared the end of poverty which certainly is a good topic for headlines in media https://news.cgtn.com/news/2020-11-23/China-eliminates-absolute-poverty-one-month-before-schedule-VEp8VAJJS0/index.html

It should be not underestimated that this development probably can be regarded as the most positive historical achievement of the CP during the past 100 years. However, the increasing uneven distribution of income remains a burdening problem.

Ad 6)  Here we have the everything else outstanding explanation for China’s current  increase of its success marketing: the forthcoming CP-jubilee year of 2021.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

Back to Start Page

RCEP – benefiting from “America first”

16 November, 2020

Only yesterday – on October 15 – the Regional Comprehensive Economic Partnership (RCEP) Agreement finally was signed after eight years of complicated negotiations, altogether over 30 rounds. https://asean.org/storage/2020/11/Summary-of-the-RCEP-Agreement.pdf

These negotiations included the ten already co-operating ASEAN trading partners: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, The Philippines, Singapore, Thailand, Viet Nam and the five “deal newcomers” of China, Japan, South Korea, Australia and New Zealand. These countries amount to as much as 2.2 billion people or around 30 percent of the global population and GDP.

Without more detailed information right now one may conclude that RCEP – after all national ratifications – will be the starting point for the largest free trade zone in the world. Initially, President Obama and the U.S. wanted to be part of the negotiations as well. This plan was shattered by President Trump and his “America first” policy; certainly not a good idea – not even for the U.S. itself.

Comments – the U.S. and the EU in a weakened position (Sweden included) 

¤ Right now: China the main winner – the U.S. and the EU the main losers.
No further explanation is needed to underline that China clearly sticks out as the most powerful economic player of the 15 RCEP countries – in regions geographically not too far away and, consequently, already China’s main trading partners when summarizing the whole RCEP area. The objective of the trade agreement is to include over 90 percent of all traded goods for free trade and roughly two thirds of all cross-border traded services according to the following official source: https://www.mti.gov.sg/-/media/MTI/Newsroom/Press-Releases/2020/11/Press-Release-on-the-Regional-Comprehensive-Economic-Partnership-Signing.pdf.

However, some applicable time horizon cannot be found in available documents. Usually, it takes quite some years until major trade agreements have come into place completely.

¤ Really “fait accompli”?
Currently, I do not see toughly pressing obstacles for the introduction and – later on – continuation of the RCEP. However, new events sometimes change things. We still do not know about the speed of the complete abolition of all the different tariffs – may be much more slowly than many experts assume today.

Furthermore: Will President (Elect) Biden work for an American joining later on which would include new negotiations? We never know. But we probably can expect that Biden will be looking for (somewhat) more relaxed relations to China –whatever this may lead to.

¤ The EU needs much more cross-border co-operation in Asia – but not with India or China.
The EU’s trade with the expanding 14 RCEP states (China excl) is, of course, much more limited than China’s. In my view, only a much more co-operative EU will have a chance of really successfully being able to compete with China in the other RCEP countries.

However, it would be wrong to see India as an alternative to the RCEP. The answer can only be RCEP and India which has been suggested. Besides, India has been invited again to join the RCEP. This is not in line with current Indian ambitions – but who knows what will happen in 10 years or so?

¤  Return to a multilateral trade treaty – indeed good news.
In recent decades China and the U.S. have developed more and more into promoters of bilateral trade agreements. Theory and research, however, prefer clearly multinational trade deals.

The RCEP finally means a step into the right policy direction!

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

Back to Start Page