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Analysis and forecasting of opportunities for intensification of the Russian economy development, subject to the structural and financial constraints

Priority areas of development: economics
2020
Department: Laboratory of Analysis and Economic Processes Forecasting

Goal of research

Advancing the methodology of economic research and empirical economic studies; developing scenario economic forecasts for the medium- and long-term based on the needs of federal executive bodies, expert community and civil society.

Methodology

The studies were based on the existing stock of models and methodologies of LAPEP for various economic sectors (macro, banking, real sector, monetary policy, fiscal policy etc.), as well as on the new tools developed in 2020. Quantitative methods employed included methods of classification, decomposition, aggregation, clustering (k-means algorithm), comparative analysis, graphical analysis, principal components, Bayesian model averaging, graph theory, 2-step GMM, logistic regression, LASSO, SFA and DEA.

Empirical base of research

A wide range of sources was used for this work, including data from Russian statistics (Росстат), Ministry of Finance, Bank of Russia, Ministry of Industry and Trade, Ministry of Economic Development, Federal Treasury, Federal Customs Service, international databases, mass media publications, official news outlets on decisions made and situations assessed. Also, for this work a database of statistical information, unique in its breadth of scope and containing over five thousand series, was employed. It was developed in-house by LAPEP employees. The following databases were also used: Cbonds-PRO RU (database containing information on the issue of Russian corporate bonds), Loans-PRO (database containing information on syndicated credit lines), BIR-Atlantic (БИР-Атлантик database with information on accounting statements for legal entities) and other data.

Results of research

Extraordinary situation in global and Russian economy in 2020 defined the shift from fundamental to empirical studies(as part of RS-16 works).

  1. A novel method to estimate economic activity with hourly and daily electricity consumption data was developed both for Russia and for regional energy areas. The analysis was conducted daily at the onset of the lockdown measures, and weekly afterwards.

  2. A new method to forecast and nowcast investment activity based on data on production and imports of capital goods was developed and applied in research monthly.

  3. The main trends in the study of bankruptcies of legal entities in Russia in 2020 are highlighted. During the spring the number of bankruptcies plunged following the lockdowns and moratorium on bankruptcies, as a result over 1300 bankruptcies were probably deferred. This plunge was partially compensated immediately after the lockdown during June-July, as ruling of the Arbitration Court have peaked.

  4. An analysis of financial statements of companies was conducted. By mid-2020, profitability has decreased strongly, falling over two times. The decrease was concentrated in a small number of strongly impacted sectors: for mining the fall was from 12% to 2%, in transport profitability fell to zero, in services it became negative at -4% vs. 3% a year ago. The fall in profitability was the only significant change in financial status of companies. Neither solvency nor liquidity or other indicators changed significantly.

  5. An analysis of industrial production by main type of economic activity was conducted. The production dynamics was markedly different by sector. On one hand, production of durable consumer goods took the heaviest hit, as well as all segments of transport machinery. This was caused by the sensitivity of those sectors to the household incomes on top of the lockdowns. On the other hand, growing sectors included pharmaceuticals and medical equipment. The production in sectors with a stable consumer demand was practically unchanged.

  6. It was shown that the increased growth rate of monetary aggregates will continue during the year, while the rates are expected to remain stable. Firstly, dedollarization potential is almost fully used. Secondly, despite lower rates, the credit is likely to stall as the delinquencies are increasing. The only pro-monetary expansion factor is expected to be the growth in monetary base, as the central bank deposits are declining with the money being used in the economic activity. This process is likely to continue in 2021. On top of that, the growth in broad money would likely be supported by the growing bank demand for Bank of Russia funds.

  7. A research was conducted on the elements of mechanism of seeking the financing by Russian non-financial companies using data on documentary interaction of lenders and firms. The research revealed a number of trends that allow to identify the real economic activity behind a documentary interaction, and also allow to compare the scope of activities in Russia and the European countries. This is useful for developing recommendation in banking supervision and financial market development.

  8. An aggregate indicator on development of retail segments of financial sector was developed based on principal component analysis. This indicator is an important predictor of development of the rest of financial markets and allows to improve prediction in the models of forecasting of long-term financial sector development.  

  9. The mechanism was outlined for transmission of crisis impulses into the systemic contagion of the banking sector, and this mechanism works from small and medium lenders towards the largest lenders with state capital – “national champions”.

  10. As a part of improving model quality to forecast bankruptcy probabilities in the manufacturing, a technical efficiency factor was introduced using stochastic frontier analysis method.

  11. A method was developed to rank the trade partners of Russia on the basis of the foreign trade in the high-tech goods and the corresponding country rating was constructed. Using clustering method, three groups of partners were outlined. The country supply chains are stable with regards to import, however high-tech export value chains are not sufficiently stable

  12.  A series of analytical notes was prepared to provide a framework for the current state of the Russian economy. The following monitoring reports were issued on a regular basis (some of them on a weekly basis). As regards the monthly reports, the topics are “Current trends in the development of the Russian economy”, “Trends in the development of Russian industry”, and “Leading indicators of systemic financial and macroeconomic risks”; “Trends in Inflation”; “Trends in the Social Sector”. As regards the quarterly reports, the topics are “Monitoring the intensity of bankruptcies”, “Monitoring and analysis of the technological development of Russia and the world”. In addition, a series of monthly analytical notes were prepared. The analysis of the most important measures of economic policy, as well as scenarios and forecasts of the development of the Russian economy, designed by the Ministry of Economic Development of Russia and by the Bank of Russia.

  13.  Starting with the second quarter, the research related to the economic effects of the global COVID-19 pandemic was started. A series of monthly analytical notes were prepared both on impact analysis and policy proposals for minimizing pandemic outcomes for the Russian economy.

  14. As part of the implementation of this project, several medium-term (up to 2021) scenario forecasts of social and economic development of Russia were outlined. The analysis of scenario conditions and medium-term forecasts of the Ministry of Economic Development was carried out. Also, an analysis of the monetary policies of Russia was being carried out regularly.

  15. In 2020, the project participants have published 20 articles in Russian and English; presented 24 reports at Russian and international conferences on the topic of the project.

Level of implementation,  recommendations on implementation or outcomes of the implementation of the results

The implementation of the investigation goals will help improve the quality of socio-economic analysis and forecasting. Also, the results of our investigation can serve as a foundation for further work on an analytical support when preparing to make major decisions and develop strategic documentation.

During this project, significant attention was paid to the preparation of notes and analytical materials, illustrated materials and forecasts that were passed on to executive and legislative branches of government (the President’s administration, government staff, Ministry of Economic Development, Ministry of Industry and Trade, Ministry of Education and Science, Bank of Russia, Rosstat).