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«    June 2017    »

The economy and the construction complex: the decline will go on

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The economy and the construction complex: the decline will go on

What is the expert’s pessimistic evaluation based on?

As far as the Russian economy on the whole is concerned, for four years it has been in such a condition that the volume of investments has not made it possible to do simple replacements. The situation is extremely unpleasant for work in the construction complex in the long run (meaning that such work has to be built before it is sold).

Any construction is started after having some prospective demand in sight, and then in the construction process it can transpire that the demand is lower than first anticipated. This negative situation is aggravating as there is also unsold real estate on the construction market which was erected earlier. Accordingly, the problem is spiralling.

Distinct from industrial production, construction work cannot be stored, and even if it could be, one should understand that such storage of it leads to a very heavy burden on the one who financed it, as taxation grows. In simple terms, this means if you have built an object you are to pay taxes regardless of your having sold the object or not. It is not surprising that the construction complex is in almost the worst condition among all of the basic industries in the Russian economy.

Presently, we can definitely say that the decline of the industry will continue. And it is not clear what can be done about it as no real measures are being taken to resolve the situation.

Besides, different “financial matters” are likely to lead to the next national currency devaluation. And, unfortunately, I do not think this is avoidable this year. What is this forecast based on, though? The thing is that the Russian market is still open for different types of financial jobbers, and they traditionally play this way.

First, the financial markets are pumped on the basis of some positive messages. For example, everybody has been shouting at all crossroads about a successful deal with the state’s holding of the Rosneft equities bought by foreign investors. Then, based on this deal, the market is said to go up.

Speculators come to the market, and it really goes up, the rouble becomes stronger. Then money is quickly siphoned off, and the market falls with devaluation. We saw such things in 1994, again in 1998, and with the last one we had recently, in 2014. And I think the same may happen in 2017.

Why do I think so? Because it is a very convenient instrument for international financial speculators, with the help of whom they may earn a great deal of money and ruin those who allow themselves to carry out an independent policy.

As long as construction with all its cycles needs long-term money any devaluation of it equals death. Furthermore, it will be a strong blow both for the construction complex and for the general public. If it takes place (and it cannot be ruled out), many people having taken out mortgages will find themselves in a tough situation and will not have the money to pay them back.

Taking all these aspects into account, I think that 2017 will be no better than 2016. And it does not depend on Donald Trump being President but, rather, on the economic model we live in. It has not been adapted to economic growth at all. And unfortunately, we cannot do anything about it.

Mikhail KHAZIN, economist

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