Friday, March 27, 2020

Major Russian Cities, Including Moscow, to Be Hardest Hit by New Crisis, Zubarevich Says

Paul Goble

            Staunton, March 24 – The collapse in consumer demand in the Russian Federation connected with the coronavirus and the collapse of the ruble together with declining prices for oil and gas on international markets are depressing the entire Russian economy but hitting the major cities especially hard, Natalya Zubarevich says.

            The regional economist at Moscow’s Higher School of Economics says the cities were doing much better than the regions until recently but the shocks she describes – “a perfect storm,” if you will -- will send the major cities where service industries face collapse down further and faster than the already depressed rural areas (

            The collapse in demand has hit three major sectors, she says. The first is the service sector which includes Russian airlines which have cut the number of flights by as much as 40 percent. And because most of their planes are leased, they face bankruptcy if they cannot make their payments.

            Also in this sector are restaurants and cafes.  The number of customers visiting them is down 30 percent for the country as a whole, and “in places, already 90 percent.” Most of them rent, and if they can’t earn enough to pay it, they too face bankruptcy.

            The second block includes the automobile industry, Zubarevich continues. Purchases were down even before the current crisis by about two percent. Now, they have dropped to almost nothing as people tighten their belts out of fears that the future ahead for them will be even worse.

            And the third block which includes oil and gas is also in trouble. It is unclear whether Russia can make a deal with Saudi Arabia but even if it does, worldwide demand is down and prices will remain far lower than they were. And as to gas, LNG prices are now at lows where they are likely to remain for a long time.

            The impact of these changes will vary by regions, the economist says. “The agrarian south, for example, will hold on: it will simply produce even more. “The most complicated situation will be in the major cities, in which as we were recently told live the 70 percent of the population that is middle class.”

            That figure, offered by Vladimir Putin, is nonsense, she suggests, “In the best case,” only 20 to 30 percent of Russians are middle class; and if one uses more restrictive definitions, then only six to eight percent are.

             The Kremlin’s proposed remedy for the economic crisis, a sum of about 300 billion rubles (four billion US dollars) is totally inadequate to the job. Far more will be needed.  Moscow city can make a contribution, of course, but it can’t solve its own problems by itself unless there is a radical change in tax policy, something very unlikely in the near future.

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