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Anton Tabakh: “We will see a slowdown in the economy at the end of the year”
I can only communicate with people who take out loans.
— Anton Valerievich, today we are discussing the situation of the growing Russian economy, which has been living under sanctions for more than two years and, despite this, is even overheating, as the Central Bank says. Regulators believe that a tight monetary policy is necessary because the economy needs to be “cooled down.” Let’s discuss key rates. Ordinary citizens have already followed this example. The next meeting of the council will be held on October 25. Do you think that the base interest rate will rise again?
— Comments from central bankers suggest that interest rate hikes will almost inevitably follow. Indeed, while, for example, before the budget and other news, there was a feeling that interest rates would rise by 1 percentage point, it is now very likely that interest rates will reach 21% in October.
Tariff indexation is happening at a fast pace, which is essentially inflationary. The Russian budget itself is very strict and stable, but behind the budget there are things that clearly contribute to the growth of inflation.
Transaction costs are rising. Roughly speaking, if a few years ago a settlement under a foreign trade contract took a few minutes, and it didn't matter at all which bank you had an account with or which bank the other party had an account with, now the transaction takes weeks. Or even if it takes a few months, it won't cost you anything. It's just several times more expensive and much more expensive. Manufacturers and intermediaries have no choice but to pass these costs on to consumers.
From this point of view, the Russian Central Bank has an incentive to raise interest rates. But every economic decision has its price. Let's talk about this today. Probably good for people opening new deposits. Right now it feels like deposit interest rates are close to their peak. And I can only sympathize with those who take out loans.
— Although it has been growing since July last year, consumer activity remains high. Despite high interest rates, people continue to take out loans. Will the growth of consumer and auto loans slow down in the future?
— On the one hand, there are rates, and on the other hand, the population's income is really growing objectively, and first of all among the population that many years ago did not receive additional salaries, and now, on the contrary, there are overtime, additional shifts, higher-paying jobs. I have the opportunity to move and there were lower rates before, but I did not have money for the down payment. A loan may seem much more expensive now, but you have money.
Over the last three years, people have gotten used to the fact that wages are growing rapidly. Prices are also growing rapidly. So if you have inflation and you expect wages to grow rapidly, interest is less important purely psychologically. However, interest definitely matters. Probably no one will take out a car loan at the rates of microfinance organizations.
The same goes for corporate loans. When you look at the types of loans that businesses get, most often it is working capital for a recent surge in consumer activity or government contracts that must be strictly adhered to. The rates are less important here. At the same time, assuming that a consumer can get a loan now and interest rates have gone up, that is good for them because they borrowed cheaply, but it does not work for businesses. Business loans have variable interest rates.
The speed may be reduced slowly and carefully.
— Can we now predict when central banks will start cutting interest rates?
"Analysts need to have some humility and understand that the tools may not always give accurate forecasts. Specifically, we took what was discussed at the end of last year and looked at what it looks like here. For example, interest rates are now starting to fall and are expected to reach about 13% in the new year, and inflation is expected to be much lower.
Now everyone from financial experts to less-than-competent economic journalists are running around like hysterical squirrels screaming that something terrible is happening and that the ruble is falling. But the ruble is now at about the same level as it was a year ago. So now the next question: when can we finally get out the tarot cards and coffee grounds?
The problem is that when we talk about current inflation or other indicators, we often look in the rearview mirror. That is, we look at the consequences of what happened, and not what will happen in the future. Therefore, it is necessary to look at many leading indicators, including raw material purchases, the state of the raw material market, inflation expectations and credit activity. Here we see a cooling. Perhaps the Russian economy has already begun to slow down. Wages are no longer growing at such a fast pace and not in all industries. Credit activity has decreased. And all this will lead to a slowdown in inflation by the first quarter of 2025. Although this is far from what central banks would like to see.
It is possible to assume that by the summer central banks will start to cut interest rates. However, if we take countries that have previously faced similar scenarios, especially Kazakhstan, Brazil and Mexico (although there is no sanctions pressure on the economy or expenditure items related to the SVO), then the pace is slowly and cautiously declining.
— By the way, the Central Bank representatives said that they started raising interest rates quite late. I should have done it earlier. Do you agree with this thesis?
— This is a difficult question. Because I and most representatives of my economic thinking have big questions about what the Central Bank of Russia is doing. In other words, is it really necessary to kill all living things, except, so to speak, those directly financed by the state, in order to achieve 4% inflation? Yes, this will reduce inflation. But this is the same as in the body. For example, focusing only on achieving a certain temperature, regardless of what happens with other indicators. If the temperature is low, it is increased, and if it is high, antipyretics are also administered. At the same time, we do not understand why this fever occurs, and we do not see what is happening with blood pressure and digestion. But everything has a price. Fighting inflation by raising interest rates is also expensive. For example, investment activity decreases sharply.
The 4% inflation target was set under very different conditions, including transaction costs imposed on the economy, investment requirements and access to capital.
The inflation target may still have to be moved, as 4% inflation is unachievable in the current external circumstances. This is a contentious issue and very interesting in the context of the base rate hike. However, is it worth the candle?
It is clear that no one wants inflation like Turkey. Anyone who has been to Turkey recently knows that something unusual is happening in a place where exchange rates remain virtually unchanged due to high exchange rates and inflation last year was around 60%. Turkey is an example of a rather failed monetary policy that is very inconsistent and does not achieve its goals.
— The Central Bank is advised to raise interest rates, since the population’s saving activity remains weak.
— Savings activity is not that weak. Firstly, it is weak on average because not everyone has money for large-scale savings, and secondly, it is still short-term because most people have deposits. For 6 months, 1 year, 2 years. People do not invest for the long term. However, today banks do not have access to cheap and long-term funds, so for this purpose investment incentives are launched and long-term savings programs are created according to the best examples in the world. Now let's see how it works.
If you keep walking, they will most likely catch up with you.
— Let's talk about the state of the Tatarstan economy. We have a rather surprising trend. The industrial production index has stopped growing and at some point even showed a downward trend. In my opinion, its indicators are among the lowest compared to regions such as the Volga Federal District.
— Now the notorious base effect affects the industry of Tatarstan. You are in a more developed region than almost all of your neighbors. Tatarstan has always been a leader. So if you are already ahead, they are more likely to catch up. There are many exporters in Tatarstan who are having a hard time today because of the same oil industry, etc. In many regions around us, there is a higher share of sectors that have benefited from increased government spending. You were already doing very well, while for others, external factors have led to their progress.
Tatarstan has almost all indicators at a very good level. Previously, the gap with our neighbors was large, and now the gap has become smaller, but this is not because the situation in Tatarstan has worsened, but because our neighbors have begun to feel better for a number of reasons.
— How will the local situation develop further?
— Since this depends on the further scenario of economic development, we should always stipulate that if everything continues as it is now, then with a high probability we will see a fairly noticeable slowdown in indirect industries. This is due to government financing and basic consumption.
But economies don't crash by 20%, and they rarely crash by 20%. It must be some kind of mega-event, a black swan, an invasion of flying saucers.
The economy is very inertial. Many processes occur independently of external factors. A recession is likely to occur later this year, and an even stronger one next year. However, high levels of government spending do not cause a recession.
We will see that the situation on the labor market will not improve significantly. This is a long-term demographic process. But the rapid growth of wages will stop everywhere.
Next year's budget is not very generous, but if you look at the overall social spending, region, social funds, federal budget, etc., then everything is fine. The upcoming tax changes will probably have a strong impact on your business.
The queue at the exchange office is just a beautiful picture
— The disappearance of the dollar from the Moscow Exchange this year and the Central Bank's start of setting the dollar exchange rate based on bank data created a psychologically difficult situation for many Russians. The immediate assumption was that we no longer have freely convertible dollars and that regulators can set any exchange rate they want.
— Journalists and bloggers need something to write about. In fact, Russia has stood out in global practice over the past 30 years in that almost everywhere its currencies are traded outside of exchanges. Exchange trading using currencies is not so widespread, but historically our market was an exchange market. However, four months have passed since trading in dollars and euros was banned on the Moscow Exchange. And what do we see? The markets have indeed adapted, and by June it became clear that all parties — regulators, exchanges, and even those imposing sanctions — were ready for this.
There are certain restrictions on cash currency from 2022, but there is no shortage of dollars.
Again, the average citizen has a somewhat exaggerated idea of his or her importance in the currency market. I hasten to disappoint you: a queue at a currency exchange is just a pretty picture when TV people are nearby, but usually it is not so. This is due to the fact that in reality, the turnover in the cash market varies in size and turnover among large corporate participants. The bank that is closely monitored by the state is represented by the central bank.
— But about the currency. We have already talked about the single currency of the BRICS countries, which, in your opinion, is not needed at all. Can these countries agree to alternative payment systems?
— If you look at what is happening, there is some progress in this direction. A system of cross-border payments is emerging, replacing SWIFT, which was the only generally accepted universal system before the sanctions were imposed. It is hard to imagine that at the upcoming summit in Kazan they will sign some declaration on the creation of a common payment system that will unite Egypt and Ethiopia with the Emirates. It ranks first among the world's financial centers. In most cases, settlements will be made between countries with approximately the same level of economic development and demand. It is obvious that several payment systems will exist for some time, and one of them may become generally accepted.
It will be a long process. If you look at the formation of almost all payment systems, they took decades. Now things are moving faster, but it is not a matter of a few declarations and agreements. Even if the government and the central bank agree, all banks must participate. And this is a very conservative structure, so many are afraid of American sanctions.
In fact, the only place where the United States is truly a hegemon, rather than a large, resource-rich economy, is in the financial sector, which is why financial sanctions are most visible. So while some steps may be announced and steps taken to create alternative payment systems, there seems to be little immediate real impact.
Next year we will see a credit contraction and a recession.
— In conclusion of our conversation, could you predict how certain sectors of the economy will develop in the future?
- It's still a little bit off my agenda. But probably next year lending will cool off considerably and the recession will become quite severe. But that doesn't mean everything will be fine. More likely, it is. Things that were growing rapidly may suddenly stop growing, and in places that were just stable, activity will start to decline.
It is clear that infrastructure or national projects and the entire ecosystem associated with them will be very good. Money is allocated for each scenario. For example, housing construction is likely to slow down due to changes in the mortgage market. Accordingly, a decrease in the number of new project launches is expected next year and in 2026.
— The cancellation and strengthening of the long-discussed preferential mortgage program by the Central Bank, the Ministry of Finance and the Ministry of Construction had a serious impact on the market. Do you believe that there is a mortgage bubble in Russia?
— Four years ago, I was asked the same question. When Covid was still around, we wore “muzzles” and sat far apart. (By the way, we have almost forgotten how all this happened.) There was a strong feeling that there was a mortgage bubble, although in fact there was none. At the same time, in some regions there was a significant increase in prices due to mortgages, for example in the Far East.
There is no bubble in the mortgage market. For a bubble to form, there needs to be a big income gap, and since household incomes have increased, there are no bubbles. There is no risk of delay. But the reason for the existence of mortgage bubbles is that certain negative phenomena have accumulated. The beneficiary of a priority mortgage is not a person. First of all, developers and bankers have benefited, and owners of secondary housing have also received an indirect benefit. Because prices have also increased there. And the huge difference in the price per square meter on the primary and secondary markets is wrong. Now the situation will be balanced.
— Thank you for the interesting conversation and for visiting the Realnoe Vremya studio.
— Realnoe Vremya I wish my readers a good day and a good autumn. Well, it was from the forecast published today that important and useful conclusions were made. Because the most important thing is to be attentive, think with your own head, and not listen to the advertising of experts or analysts.