Coronavirus anniversary: how the economy is experiencing the perfect storm

Yelena Ivanova, Natalia Seibil

In 2020, Novye Izvestia correspondents spoke with Moscow businessman Alexey Nikishov several times - first in April, when the country was locked in quarantine. Then Alexey had one dream - to keep his fitness club, which he created from scratch in the east of the capital. Then we met in the fall - and tried to estimate the size of the trouble together with him. His whole life's work was crumbling before his eyes. Nikishov had to get a job to support his family and try to save the club and cafe. Today we can summarize what happened and what failed to be done during the year of the pandemic.

Losses - up to 50% of turnover for many items. Now the high season has begun in fitness clubs, but Nikishov is working at zero. Will they be able to survive, autumn will show. But there is good news: the landlord turned out to be a sensible person and reduced the rent. And I also managed to get loans from the bank, says Alexei:

- Surprisingly, Sberbank woke up. When we discussed with them the issues of preferential loans in the spring, they themselves were at a loss. Now they woke up and launched a loan financing program. We took loans at a reduced rate, within 8 months you have to pay a preferential payment in the form of 7% per annum, which is a great help. We took out a loan for a million. We need to buy some equipment and repair something. This helped us. And of course, we were forced to cut costs a little, reduce the number of employee hours.

Nikishov could have greatly increased the price of season tickets, as did all the clubs in Moscow, but considered that this was incorrect in relation to people. There are many poor people in his area - 35-40% used to pay 500 rubles a month. This program had to be stopped, but old clients were left, they will continue to work until September. The rest received a subscription of 3,000 rubles a month - much less than the average in Moscow and even cheaper than in state sports clubs. But even this increase of 500 rubles was too much for many people:

- One of the negative factors came into play when people came for money. Many people buy for a year, but there have even been cases of returning the card for a month. We counted and it turned out that we gave a total of 700 thousand rubles in refunds. This is a net loss for us, because the money is in circulation, and where do we have to get the money from now, because there is no such turnover now. Money is more expensive now than it used to be. A price increase can provoke an outflow, and besides, it is not correct in relation to clients, because they are used to the coach, accustomed to classes, what if the person refuses to walk? I feel sorry for those.

The number of sessions had to be reduced in order to reduce the cost of paying trainers. But Nikishov pays wages to everyone and on time.

The situation is worse with the cafe, which has been with Alexei Nikishov for 20 years. The entrepreneur does not know what to do with it. Food prices are rising before our eyes, overhead costs are high. How in the country of water and nuclear power plants and oil fountains the electricity bill reaches 150 thousand per month, Nikishov cannot explain to himself:

- People are not ready to pay money now, although it is tasty and healthy here. There are regular guests who used to come once a week. Now they come once a month and say that now they cannot come more often. Everyone understands everything. The average check has now also dropped. We will probably live until summer, because in the summer there are additional entertainments and a veranda, and then we will definitely transform into something. But this requires funds, and again you need to invest.

There is not enough income from the business, and Nikishov continues to work as a manager as well. The goal is to save businesses.

According to the latest data from the Ministry of Economic Development, the country's gross domestic product fell by 3.1%. It seems that compared to other countries, things are not so bad.

A fall

Paradoxically, all our economic weaknesses - an underdeveloped service economy and a dependence on raw materials - played a plus this time. Alexander Shirov, director of the Institute for Economic Forecasting of the Russian Academy of Sciences, explains the rather low structure of our economy. With the share of consumer services 10 percentage points lower than in Europe, the blow softened. In addition, the demand for raw materials fell much more slowly than for finished products; German exports, for example, fell much faster than Russian ones. Quarantine measures in Russia were also much milder, Alexander Shirov points out:

- Here we also have a positive. Our authorities did not close large construction projects, the defense industry, agriculture worked normally. Due to this, we got an additional plus. Anti-crisis packages were large in all countries, but ours was large, from the point of view of the fact that never in recent years, even during the 2008 crisis, has the state invested so much in anti-crisis measures. Our federal budget has grown by 25% compared to 2019.

President of the National Research Institute of World Economy and International Relations named after Ye. M. Primakov of the Russian Academy of Science Alexander Dynkin believes that in Europe, governments have taken convulsive, and in some places panic steps. They immediately abandoned the Maastricht Agreement and lifted restrictions on state borrowings, and the lockdown was introduced asynchronously and inconsistently. Not so in Russia:

- We had quite economical, but, in my opinion, targeted measures to support the most vulnerable segments of the population, the most problematic sectors of small business and large enterprises. In addition, we have a much smaller share of small business in the economy. In Russia it is about 20%, in the world, including in Western Europe - 60%. Small businesses turned out to be the most vulnerable. Since there is little of it, we did not have such a vulnerability.

In Russia, neither the state nor the banks were ready for the crisis, and state aid worked at the end, says businessman Alexey Nikishov:

- The measures were taken as follows: let's try it! - Let's. And off it goes ... Yes, the state does not stand on the side of merchants and small business, and small business, of course, is abandoned. Not that the whole world knows how, but here is a different story. Hands, of course, let go a little, but the most important thing, which is not there, is mutual understanding. We are really on opposite sides of some kind of barricade. And this is the biggest problem.

RAS Academician Abel Aganbegyan strongly disagrees with the fact that the economic decline in Russia was insignificant during the crisis. Yes, the indicators of material production fell less, but only the economy does not consist only of it.

The key importance in the economy are indicators of the safety of the population, the health of the population and the well-being of the population, the scientist believes and says that he relies on the instructions of our president, who, in this sequence, formulated the goals of socio-economic development. And here we are much worse than other countries. We entered the crisis from stagnation.

From 2013 to 2019, expanded fixed capital investment - the main engine behind emerging economies that grows - has already declined by 5.6%. In 2020, they decreased by another 4%. Thus, the main driver fell by more than 10%.

- Investments are dead unless skilled labor is attached to them, an integral part of the knowledge economy, says Aganbegyan. - It includes R&D, education, information and communication technologies, biotechnology and healthcare, because human capital depends on how long the working period lasts , illness and so on. Education has declined in GDP by 10% . Health care is at zero, information and communication technologies have declined. For 6 years of stagnation in Russia, the real disposable income of the population decreased by 10.6% . They were superimposed on another 4-5% in the crisis year 2020.

- Therefore, our real income today is 14-15% lower than 2013. There are 6 million more poor people - then there were 16.5 million, now more than 20 million. The number of unemployed has increased. But we consider unemployment inaccurate, without migration, without self-employed. And we have 20 million self-employed people out of 75 who are able to work. The number of unemployed has increased by 1.5 million, but in reality this figure is greatly underestimated. In terms of welfare, we are much worse than other countries, much, many times! Nowhere have real incomes decreased by 15%, says Agenbegyan.

Mortality and depopulation

The worst thing that happened in Russia during the pandemic is a huge increase in mortality. In the crisis year - March 2020 to March 2021 - every second person in the country died from the coronavirus.

In 2012, Russia managed to restore depopulation, the excess of mortality over births, which had lasted since 1992. Over the past four years, from 2016 to 2019, the death rate has decreased by 30 thousand people every year. As a result, the average life expectancy was 73.2 years. Even in the first four months of 2020, the death rate decreased by 17 thousand people.

- In 2020, the excess of deaths over births was 689 thousand people - this is a natural decline in the population. The increase in migration amounted to 107 thousand people, so the natural population decline was 582 thousand people. Thus, the population of Russia has decreased by an unprecedented amount - by 582 thousand people in 2020. During a pandemic, the population will decrease by 700 thousand people. This is the worst indicator, says Aganbegyan.

The absolute figures are worse only in America. But there are 2.3 times more people living in the United States than in Russia. Therefore, per 1000 population, the death rate in our country is twice as high as that of the Americans. The death of a person is not only grief for loved ones, it is also a loss for the economy.

- The loss from the loss of human capital will exceed the decline in GDP by 3.1%, or approximately 5-6 trillion rubles. Nobody counts this, and you will not find such figures in the assessment of the results. Therefore, the pandemic is very difficult for us, and our crisis will last for more than one year, as we thought when we said that everything would be over by the spring of 2021.

Rosstat has stopped publishing the causes of death, so there is currently no reliable official data. In August 2020, the Ministry of Economic Development predicted that the population would decrease by 152 thousand people in 2020, in October this forecast was adjusted and the figure increased to 352 thousand, in January 2021 they began to call 500 thousand. In fact, the number of deaths was 582 thousand people.

- This suggests that we do not fully understand what is happening. We do not understand the scale of unforeseen, and therefore we embellish, because we do not take into account the most important thing - a person and his life. Vladimir Vladimirovich Putin constantly emphasizes: the most important thing in the country is the safety of the people. The two-fold goal is the safety of the people of Russia and the standard of living. This goal, which was set in his decree of May 7, 2018, was repeated in the decree of July 11, 2020 - the goal is described there: in the interests of the safety of the people .... This is not taken into account, - says the academician.

Food prices and poverty

Russian inflation is generally not a matter of concern to economists. Their forecast is 5% per year. The Central Bank has set a goal to prevent inflation above 4%. Alexander Dynkin believes that the country's financial authorities are effectively managing the situation, but the period of soft financial policy is over:

- I think that in the future, the Central Bank rate will either be stable or slightly increase, and this will restrain possible inflation. In addition, we did not have the so-called "helicopter money", massive assistance to the entire population, so we do not have a surplus of money supply.

Some experts say that the reasons for the rise in prices are not internal, but external. Alexander Shirov explains:

- The rise in prices that we see is mainly due to the fact that a number of goods depend on world prices, minus transport costs, customs duties, and are adjusted for the dollar exchange rate (food, motor fuel). The external market has a greater impact on the price dynamics of Russia than our internal factors. Although the increase in budget expenditures, which was in the 4th quarter of 2020, will make some contribution to inflation.

Prices are growing, although not catastrophically, but in conditions when there is no serious demand. However, food prices have already increased by 8%. Even the richest 10% of Russian families have a higher share of spending on food than in other countries in families with a similar income level, says Alexander Shirov. Half of the poorest families spend more than 40% of their income on food.

Economist Aganbegyan paints an even gloomier picture: the poor in Russia spend up to 70% of their earnings on food, which is why their inflation is higher than that of the rich. This is why the incomes of the poor have declined even more. This situation makes it impossible to invest in education, health care, and recreation. Higher food prices are fraught with lower living standards and worsening health, warns Alexander Shirov. In 2020, life expectancy has dropped to less than 72 years. Rosstat has not yet given final calculations, but it will soon be published. Abel Aganbegyan says:

- The poor became poorer, and the death rate of breadwinners increased. Imagine an average family of about 4 people. Two children, the husband receives 50 thousand, the wife - 30 thousand, which corresponds to the average figures in Russia. And suddenly the husband dies. And what is left for a wife with 30 thousand and two children? Beggar. No-no-me. And they live in a decent apartment, and my husband received 50 thousand. And not thousands, but hundreds of thousands die. Hundreds of thousands of such breadwinners!

From the point of view of people's lives, the results of the pandemic are terrible, the academician concludes.

Perspectives

Whether the global economy will truly recover by mid-2022 remains to be seen. Russia, unlike China, is in the situation of European countries, where the crisis began in the second quarter of 2020. Economists say that the first quarter of 2021 will be a disaster, and the real economic recovery can only be analyzed from the second half of the year.

- The second quarter will be sharply positive. But this will not reflect the economic recovery, but will reflect the situation in statistics. But what will happen in the third-fourth quarter and early 2022 - we will see how quickly the economy will recover. So far, we see that according to certain parameters, the economy is quite quickly adapting to what happened last year, says Alexander Shirov.

Very few economies will recover by mid-2022. In Europe, only Germany can return to pre-crisis indicators. The rest - Great Britain, Italy, Spain, France - will overcome the peak not earlier than the end of 2022, or even later, Aganbegyan said. In Russia, due to the special situation, the situation is twofold:

- We will restore the GDP by the middle or the end of 2022, but it has dropped a little. We will also restore the industry. Oil prices have almost recovered. Export volumes have not recovered, but prices are already close. We will recover fairly quickly in material production. When we ensure the safety of the people, that is, we again switch to natural growth, this will happen by 2030 at best. We can restore the standard of living by 2025.

In order to take serious measures, it is necessary to invest much more money than has been done to date, says academician Aganbegyan. The main problem of recovery in Russia is not to fall into stagnation again. We are naturally stagnating due to declining investment, a shrinking knowledge economy and an increase in mortality. A significant change in socio-economic policy is needed. Perhaps they are being prepared because the government is preparing a program until 2030-2035, but as experts say, in relative secrecy. As they say, the authorities want to conclude a new social contract with the population, but everyone is silent about the parameters.

- It's not worth guessing, but the government, like you and me, understands that things are not as good as the press and individual officials who are supposed to scold the West and praise their country according to their rank.

How Russian health care survived the pandemic, read in the Novye Izvestia analytical article "The first anniversary of the pandemic: what has changed in the country and the world".