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Pavel Minakir: the pandemic has dealt a severe blow to the service sector in the Far Eastern Federal District

Scientific adviser at the Institute of Economic Research, Far Eastern Branch of the Russian Academy of Sciences, on how the spheres of the economy of the Far East are experiencing a pandemic

Many experts at the beginning of the coronavirus epidemic stated that the Far East will suffer less than others in Russia. However, in the Far Eastern Federal District, there were industries where COVID-19 dealt a serious blow. The scientific director of the Institute of Economic Research, Far Eastern Branch of the Russian Academy of Sciences, Doctor of Economics, Professor Pavel Minakir in an interview with EastRussia talked about how various sectors of the economy of the Far East are going through these difficult times, and shared some forecasts.

Pavel Minakir: the pandemic has dealt a severe blow to the service sector in the Far Eastern Federal District

- Pavel Aleksandrovich, for almost half a year we have been living in a situation of the development of the coronavirus pandemic. Is it possible to summarize the economics of the Far Eastern Federal District regarding the analysis of losses from self-isolation, restrictive measures? Which industries have suffered the most?

- In fact, the first half of the year is not very indicative of losses. The entire first quarter was relatively prosperous for the Far East, as well as other regions of the country. Stagnation - without much breakthroughs and troubles. Troubles began in April-June.

According to statistics based on figures on output, employment, financial results, the industrial sector of the economy has suffered the least: both mining and manufacturing. So, in the Khabarovsk Territory, industry showed 4% growth in May. This indicator was provided not only by state orders. Gasoline is still needed, as before, export deliveries are carried out. Raw materials: wood, metal ores, mined, fish caught. In agriculture, activity did not stop, so in the agricultural industry - growth.

A very strong blow was inflicted, which is standard for a pandemic, in retail trade and in the service sector. Since April, retail has been losing a lot. Demand fell, turnovers decreased. Insurance and financial services were affected to a slightly lesser extent.

Naturally, restaurants, cafes, hotels did not work. It is difficult to say how and when they will be able to recover at all. According to some forecasts, half of such enterprises will simply close. General forecasts are meaningless. The situation is specific to individual businesses, very different in cities, regions. Someone had "airbags", someone didn’t, someone better adapted, the other couldn’t at all. Someone has the opportunity to attract reserves, someone does not and you can only rely on a gradual restoration of turnover. And it will take a long time. Strongly affected by changes in consumer behavior after the recession, the fears will remain for a long time.  

Great damage was done to the transport industry. Sea transport, which provides international transport, is less affected. For many regions of the Far Eastern Federal District, given the regional specifics of coastal territories, this is important. Short-sea shipping mainly starts with northern delivery.

The greatest losses are in air and road transport. For example, in the Khabarovsk Territory, passenger transportation in April decreased by 2019 percent compared to April 12.

The situation with rail transportation is somewhat better, however, the damage is also significant - international rail traffic has become less.

- How do these factors affect the gross product in general?

- In May, the negative processes continued, according to the results of two months, losses in the economy amounted to 15-16%. Fall compared to the first quarter of this year was even more significant, because, as I said, the first three months were relatively prosperous for the economy.

- Are there industries that have benefited from the epidemic? For example, one of the lawyers told me that he had a lot more clients?

- There is one. As they say, to whom the war, to whom the mother is dear. Someone bears the brunt of losses on the fronts, military or labor, while others may even be enriched. For example, trade in non-food goods collapsed, offline stores were simply closed. On the other hand, the quite working food sector in the retail trade felt pretty decent. On the one hand, people in isolation want to eat well, on the other hand, part of the money spent on things went to food.

So the lawyers, probably still not all, there could be a stir. People ran to consult: to whom new benefits are laid, to whom not; to whom government money is paid. There is a general confusion with the docking of laws in force, both on the go and interpreted by both private and legal entities. I mean different laws - labor, property, social, administrative norms. What are all kinds of newly invented fines, sanctions, bans.

Real estate turnover, according to statistics, "froze". But real estate is different: for expensive housing, in the individual sector, demand has even increased; in the secondary market, the situation is worse.

As for the repair, in April there was a decline. Since May, the situation has been improving. Deferred demand is affecting, people need to be repaired.

- How are fast-growing sectors of the economy, such as the cryptocurrency market, feeling in this situation? IT?

- The more unstable the international system of traditional currency settlements, the more the image of cryptocurrencies is strengthened. Now there is a period of general recession, economic turnovers in the global economy are slowing down, which is bad for all payment systems, negatively affecting stock and currency markets.

However, while a general collapse of markets does not occur, individual sectors are growing. The pandemic has become a golden time for the IT industry. The demand for remote services has increased tremendously, immediately new applications and software appeared. The demand structure has changed in their favor; an increasing part of the total income has begun to go to developers and suppliers of all types of mobile services. The need for communication has not decreased, it has become even greater. Plus distance learning, educational courses, virtual communication with art and more.

So, demand flows from one sectors of the economy to others - the law of conservation of energy works. Of course, there are winners and losers. If you are sitting in a warm office and preparing cartridges for war, this is the bonanza.

- Perhaps the increase in the dollar exchange rate affects the situation in sales in our country?

- Events in the sales market are not very tied to the dollar, although, of course, there is a certain connection. Now the dollar is more a tool for players in the financial market than it determines the value of goods and services. True, for many sales sectors right now the “devaluation” of the ruble in March-April is “winning back”. Now the ratio of dollar to ruble is in the “tango at Rabinovich school” phase - a step forward and two backward. We observe a series of falls and bounces - the so-called sawtooth curve. This affects both the dynamics of oil prices, and the situation inside the United States, the European Union and China, the policy of the US Federal Reserve System and the zigzags of global economic policy. Hardly anyone will undertake to give a stable forecast for the dollar. Although, of course, those who wish to eat.

- Everyone carefully monitors what is happening in the labor market, where unemployment is growing. Many small businesses are closing down, staff optimization is underway. How much does the assistance provided at the federal and regional levels help enterprises in the Far East?

- It is necessary to deal with each measure separately. The time factor plays a role. If you are presented with a rental discount, this is a plus, if a tax deferral is more likely a minus. It is unclear whether you will be able to restore your momentum at the end of the year, and how you will pay off your debts.

Everything related to lowering business costs or increasing household incomes is a plus for the economy. But on the other hand, minus the budget and state reserve funds.

- How critical is the situation? It seems that there are still enough funds in the treasury?

- The fact is that in the three months of the second quarter the budgets suffered a big injury. No exact data. Assistance packages were estimated at three trillion rubles in May. This is approximately 1,5% of the consolidated budget of the Russian Federation. But, mainly, support costs came from funds - national welfare, reserve government. Infusion into the economy and households continues. Still, in the main, these are not direct expenditures of the budget and funds, most of them are future expenditures (guarantees, reduction of the inflow of incomes, etc.). Of course, there are direct costs (payments to the population, certain categories of employees, subsidies to companies). The main problem for the budget is the shortfall in the planned revenues, the economy is slipping. This is really a problem. The budget sector in Russia is large. There are social, protected articles in the federal budget that cannot be collapsed. It is necessary to pay salaries to state employees, to maintain an army, infrastructure. If you spend support from current expenses, you will not support anyone, but you will scatter the entire socio-economic system of the country.

- How can the alleged lack of funds in the federal budget affect the regions of the Far East?

- Last year, the Far East received interbudget transfers of 400 billion rubles. This is about half of everything that the Far Eastern Federal District earns itself. This year, the concept of support includes the reinforcement of regional budgets in connection with the fight against coronavirus. This is the purchase of medical equipment, additional payments to doctors, salaries to state employees. Three quarters of this transfer from the federal budget account for the revenues collected on the territory of the region itself, transferred to the federal center, and then redistributed to the region again. The more problems in the region’s economy today, the lower the amount of taxes collected in the territory tomorrow. Accordingly, it is more problematic to receive at least the previous transfer amount from the center.

- In general, there are less and more subsidized regions. For example, Primorye should probably be easier in the face of a lack of federal support?

- Primorsky Krai as it was, and remains subsidized. In the Far Eastern Federal District, only one non-subsidized region is the Sakhalin Region, thanks to royalties (type of license fee, periodic compensation, usually cash, for the use of patents, copyrights, franchises, natural resources and other types of property - approx. Ed.) Which they receive. This is a special story.

The difference of Primorye from almost all entities except Sakhalin is in the lowest level of public debt. Only about 6% of the GRP, while the Khabarovsk Territory - more than 60%. A large debt relative to GRP is almost all entities in the Far Eastern Federal District (except Sakhalin and the Primorsky Territory). This is one of the characteristic features of the Primorye budget, although the size of the federal transfer for the region is not much larger than for the Khabarovsk Territory.

I suppose that we are talking here about the features of the relationship of the federal center with each specific subject of the Federation. It is important how the financial interaction is built up, on what articles federal money goes through. There can be a variety of forms: direct transfers, receiving funds from the state treasury debt at 1-2%, some kind of investment. Perhaps the Khabarovsk Territory, Yakutia, was not exempted from the implementation of any mandatory programs on terms of co-financing.

- Speaking of the future, how does it seem to you?

- An unpleasant precipitate leaves the fact that the forecast for Russia as a whole for 2020 is constantly deteriorating. Back in April, they talked about a 5% drop in GDP, now about a minus 6,5% of GDP. In my last article in June, I already forecast minus 10-12%.

However, all these forecasts come from short-term data and data that the pandemic in Russia is on the decline. Is it really? I don’t presume to say.

What official statistics show is somewhat reassuring. On the other hand, the virus spread very quickly from the outbreaks of Moscow and St. Petersburg, began to mess out on all 17 million square meters. km of Russian land.

The situation in the capital is more or less under control, but how it will develop in the provinces is a big question. The most severe outbreaks are trying to stop, but, in fact, the disease uncontrollably walks throughout the country.

September 24: current information on coronavirus in the Far East
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