Resuscitation listens

Judging from the data on industrial production in Russia in November, the crisis rapidly flows from the financial sector to the real sector. By our estimate, the resulting seasonal and calendar adjustment of accounting data Rosstat rate falling output in the manufacturing sector reached last month by about 9% by October, it's more than 60% annualized. The least optimistic, according to business surveys, is observed in industries geared investment downturn - like the world (metallurgy, LESPROM) and internal (construction materials), as confirmed by statistical summaries. In the mining sub-sectors in the intensity decay is about three times lower than in the processing, which makes it somewhat more favorable picture for the industry as a whole. Potentially, one can imagine at least four channels of transmission of the crisis in the real sector. First. The decline in production, the export, due to compression of external demand, especially investment, as a reaction to the momentum given by the U.S. economy: confidently predicted a year ago otvyazki, notorious decoupling, the global economy from the U.S. cycle has not happened, the second channel is associated with contraction of credit, and after him kreditozavisimyh sectors of the economy, in the limit - moving towards a situation where the Bank is not only a lender of last resort, but just a single lender. The third channel - worsening balance of payments, while reducing imports due to devaluation and contraction of credit. Consequence: a contraction in the sectors targeted for service imports, primarily in trade and logistics. Finally, the fourth crisis mechanism - deflationary spiral, which means rising unemployment, reduced consumer demand, rising real cost of servicing loans. Each of these diseases requires its own medicine - unless, of course, generally treated. What gave impetus to the November collapse? Structure of the fall in production in November, said that first took the blow of the crisis are those who, and had to take. Has a maximum drop in production in industries that some degree of export-oriented (except hydrocarbons) - is primarily metallurgy and chemistry. The volume of production by June, which can be conventionally regarded as the last point, is not affected by the recession, fell in both sectors by 30% in terms of production, they dropped to that of about eight years ago. It is clear that from the industry downturn in the chain began to unwind further, quickly getting to the producers of coal, coke, and rolling equipment. Slightly less than the decline in timber processing - are falling to the release of June amounted to 10-12%. The second loop - the fall in industrial investments and in the construction industry due to the contraction of credit and, possibly, with deflationary expectations (especially in housing). So far there is about the same reduction in production, as well as in export-oriented industries - about 28-30% by June in the manufacture of machinery and equipment, a bit less - in the production of vehicles (but it's because not too long reduce the output of passenger cars). Further deepening of the recession will depend on its ability to stop a credit contraction. Credit freeze sudden stop in external financing and replacement of its central inland accompanied (and probably for some time and will be accompanied on) a kind of liquidity trap. This, of course, not the classic version, when interest rates fall to zero (and real because of deflation is still positive) and the regulator is powerless to stimulate lending activity extinct. But over the final manifestation - something close to that. Infusion settled first on the currency, and more recently on deposit accounts of banks in Central and reached the final destination in limited quantities. As a result of substitution of external financing of centralized pumping strong contraction of credit so far managed to avoid it, but expect some maintenance of credit activity on a scale similar to the old, however not necessary. Most noticeably, as, indeed, would be expected, slowed down giving loans to private non-financial companies. Already in September the rate of growth the remainder of their debts to banks, while remaining still positive, fell (with seasonal adjustment and correction for the rapid growth of foreign currency loans) up to 14% versus 24% in the previous month. Adjusted for about 12 per cent inflation in these months we can say that the real expansion of lending to private enterprises by September to a halt - at least, it no longer has anything to do with the maximum real increase lending to private enterprises at 40% per annum, reached in July last year. In October, credit rose slightly at face value, but given the exchange rate and inflation continued to contract amendments. In the experience of last year, we can say that the slowdown in the real lending to businesses with 40 to 20% in real terms year on year drop in investment responded with more than 20 percent per annum to virtually zero. In this case, inhibition of growth of investment and suspend the processing industries. In the coming year we can expect worsening situation with regard to foreign debt payments that will significantly narrow the funding sources and sequestration investments even more. Many Faces of imports consequence of compression of domestic credit and export of foreign exchange earnings will be significant reduction in imports in the coming year. Depending on the oil price it will shrink (c account grown strongly non-commercial articles of the current balance) or to the level of four years ago (at a cost of about $ 50 per barrel varieties Brent, respectively, about 46 in our grade Urals), or (for a more profound failure ) even lower. Rely on processes importzamescheniya in this cycle is not necessary especially because of the lack of free capacity, but nevertheless, the depth of the recession in some sectors of the compression of imports, possibly, soften. Because of the strong contraction of the overall demand weakened the ruble, which will need to balance the balance of payments in the new situation, it may be not so great. Indeed, in addition to the course on imports affect aggregate demand, particularly investment (given the high kreditozavisimost demand for them). In fact, significant inhibition of import have been observed in recent months - in October, the cost of imports, estimated at the basket, decreased the rate of 46% per annum. Consequently, the trade balance, despite a decline of 9% to a maximum in July exports (again in a "basket" dimension), until recently, was still better than a comparable fall in prices of oil in the first half of last year (now the prices have already fallen below). All this allows to predict that the inflationary pressure associated with the devaluation of the ruble would not be particularly strong. Summarizing the action of this factor (low oil prices and falling imports), we can assume that its effect on the level of business activity may be in different directions - sometimes slow, somewhere in compensating, and the inflationary background - quite moderate. The risk of a deflationary spiral Should we be afraid of some form of deflation? Unequivocal answer, of course not, in small doses, it can become a medicine (a little bit comes off overheating of the labor market as well; deflation bubble in the real estate market one way or another it is necessary that she really started to become available), but in large, then is the rapid and strong collapse of prices, it will poison. At the same real estate market may very well be a situation of so-called negative bubble, when in anticipation of further price reductions nobody buys, and it completely stop the construction. The unfavorable factors should include the fact that the crisis will start with a high nominal interest rates and wage levels, which with great difficulty could be adjusted downward. For our country, where standards are high inflation and high and inelastic nominal interest rates, even a sharp slowdown in inflation to normal for the developed countries, indicators can provide the same devastating effect as the classical deflation observed during the Great Depression or in post-bubble -the Japanese economy. How far we are from this state? If you look at, the monetary base - and this, recall that cash in rubles, plus all kinds of bank reserves on accounts with the Central Bank - is compressed for the fifth consecutive month since July. By itself reduce the monetary base, of course, is no reason to think about the horrors of impending deflation. It mainly associated with the Work Bank twice - in September and October - reduced reserve requirements to symbolic 0,5% for all types of funds. And yet, in the structure of the monetary base, we see two distinct - as harbingers of a possible deflationary contraction in prices - a trend. On the one hand, decreased the amount of cash in circulation and required reserves of the Fund (collectively, the so-called narrow monetary base), which, in my opinion, speaks of the continuing process redollarizatsii in November (in this case we are talking about the demand for cash currency ). One would assume that the reduction in the ruble cash reflects the recovery of bank deposits, as said by the Bank of Russia. But then it would grow and shape, and once it does not, then the Cash Dollars will likely continue to be pushed out in cash as the dollar and euro, rather than contributions. On the other hand, increasing funds for the reserve accounts of banks in the CB. Bank deposits with CB (330 billion rubles on December 9), together with funds invested in Bank of Russia bonds (24 billion) higher than (and quite strongly) half of the balance on correspondent accounts (this is an average of $ 600 billion). This means that banks have been slow to expand lending to the economy, despite the generous refinancing. Banking multiplier (the ratio of money to the monetary base), showing how much money banks make from your credit activity on each ruble emitted by the Central Bank (during the credit boom of 2005-2007, it increased from 2,2 to 3), in recent months despite the drastic cuts in required reserves went down. As a result, we see even more dramatic than for the monetary base, monetary contraction in the September-October. Does this "brake" in the money supply that we are on the way to a deflationary spiral? Likelihood of this scenario exists. So far, the relationship between trend movements in money supply and inflation (CPI) as a whole did not give serious failures. With a lag of three quarters of the average rates of consumer inflation - which the general that the base - roughly reproduce the pattern of money movement. Of course, in the past, there were nuances: for example, in 2003, "visible" dynamics of money supply has accelerated because of the de-dollarization, and the prices did not react. Conversely, a surge of inflation in 2004 came against the backdrop of the money clip - then this surge has reflected primarily the reform of housing with a sharp increase in tariffs, etc. But as a trend in the bond cash flows and prices acted. According to current research, methods of Keynesian support the redistribution of employment in infrastructure projects with careful consideration of nowhere can be delivered as a credit as a way of normal, leading to increased life recovery of GDP. The apparent deterioration in the financial condition of enterprises recorded since October. About this clearly says stay put in the same Rosstat growth of wage arrears in October - just one-third. A published Rosstat consolidated profit of nonfinancial corporations fell in September to 3,8 times against the average for the previous eight months, and if someone thinks that this is the result of seasonality, then in September last year, falling about the same - 3,5 times. Out of this situation can be only one - reducing all costs, primarily wages and employment. Slowing wage growth and bringing them in line with the growth in labor productivity may be one of the few positive consequences of the crisis for the Russian market, but only so long as its effect on demand will remain moderate. It remains unclear the most important question: can the consumption - the biggest driver of growth - begin to falter due to the changing situation on the labor market? While retail sales continue to grow double-digit rates in real terms due to the desire of consumers to get rid of rubles. But if the lowering of employment and income growth inhibition consumer appetites fade, it could push the unwinding of a deflationary spiral. The first time we've played there is reason to believe that the financial panic upon completion of the adjustment of the nominal exchange rate will subside and the Central Bank will find opportunities to influence the dynamics of money and credit by maneuvering refinancing rates and required reserves. While the situation seems to be quite favorable for the rapid completion of the process of correction - a stronger dollar on the "Forex" stopped, it makes the devaluation expectations (against the dollar as the base currency hedging and speculation) is quite uncertain. The sooner the Central Bank can find the equilibrium exchange rate, the sooner we finish for the first (speculative) phase of the crisis. Perhaps it is already close to completion. Probably from the Central Bank, given the experience of foreign regulators, in addition to the traditional monetary regulation will require direct involvement in maintaining the liquidity of the credit market through additional programs such as repos. Under these conditions, in contrast to the previous stage to "save" the banking system with the most soft monetary policy becomes much more important calibration targets and instruments. In the past, of course, the Central Bank acted slightly hindered - too late with increased redundancy of incoming capital flows (and could be an analogue of the Stabilization Fund for capital), gave a real interest to go into a terrible disadvantage, and today's stage will show how much he can learn from their mistakes. With regard to government support, then there is required some deliberation. It should also be remembered that the measures, suggesting a strong state intervention in the economy with such things as soft loans, interest rate subsidies and even the credit limits on branches for banks that receive state aid funds and other benefits, can revitalize the industry in the short term, hinder post-crisis economic development. Because make problematic a rapid recovery in capital inflows.