EVGENY GORYUNOV: IT IS TOO DIFFICULT TO MEASURE THE LEVEL OF CONFIDENCE IN THE ECONOMY BECAUSE ALL ESTIMATES ARE KNOWINGLY INACCURATE

The RF Central Bank’s Analytical Portal has cited western economists’ findings that owing to the “erosion” of confidence inflation targets have to be pursued by tougher measures. Approaches to economic governance do not necessarily contribute to confidence. The rouble is depreciating again and while the government is discussing the advantages of the weak rouble, the RF Central Bank warns about price rises. Eventually, the talk about a likely reduction in the key rate has become irrelevant. By contrast, the RF Central Bank justifies why they have to restrain economic growth. But it does not help to boost confidence in the anti-crisis policy, either.

“It is too difficult to measure the level of confidence in the economy because all estimates are knowingly inaccurate. Judging by indirect evidence, confidence for everybody is low in Russia,” Evgeny Goryunov notes. It partially affects the extent of the monetary policy tough measures. “If people do not trust the word of the monetary authorities and their ability to ensure a low inflation rate, the RF Central Bank has to prove in reality that it can achieve it. But this requires the cooling of stubborn demand by means of high interest rates,” the expert said.

But what will happen to economic growth in case of such an approach? Apparently, each agency is adjusting the view of the world to its own objectives. The RF Central Bank is aimed at squeezing the rate of inflation, while the Finance Ministry stands for replenishment of the budget with export revenues. This creates the impression of some disagreement.

A dramatic increase in output of goods and services may quickly lead to recession, said Ksenia Yudayeva, First Deputy Chairman of the RF Central Bank at the enlightened forum. According to Ksenia Yudayeva, there is a difference in the economy between short-term efficiency and a long-term stability. “If you are going to maximize output this year, expect recession next year because your resources are reused, inflation picks up, problems arise and recession begins,” Ksenia Yudayeva explains. According to Ksenia Yudayeva, it is important to ensure a smooth economic development and that is the objective of the monetary and fiscal policies.

This leads us to the conclusion that the regulator’s objective is to limit, rather than stimulate economic growth. However, such an approach does not add confidence and optimism to economic agents who see disagreement in the anti-crisis policy.

“The idea of Ksenia Yudayeva is quite simple: the economy tends from time to time to get into an unstable mode, deviating upwards or downwards from the long-term development trend. The trend is justified by fundamental factors: demography, technological progress, production capacities and institutions. When the economy falls below the trend, economic depression and slump may happen, but when above the trend it becomes overheated, financial bubbles arise and inflation picks up,” says Evgeny Goryunov. The longer the economy remains overheated, the deeper imbalances are formed.

However, much depends on what estimates the decision-making is based on. For example, experts of the Gaidar Institute call for treating seriously the figures related to capacity utilization. earlier, economists of the Gaidar Institute noted that capacity utilization in the Russian industry peaked since the beginning of the 1990s, amounting to 78.5% in October 2022. In such a situation, it is relevant to speak about overheating risks.

However, Rosstat did not notice any particular records; in November 2022 the average level of capacity utilization was equal to around 60%, which means there were big unexploited growth opportunities. Thus, there is disagreement even in debates on whether it is worthwhile to stimulate in principle maximum economic growth in Russia.