2018 to see economic growth and higher wages of Muscovites continue

2018 to see economic growth and higher wages of Muscovites continue
Photo: Photo by the Mayor and Moscow Government Press Service. Denis Grishkin
The forecast for Moscow includes a decline in the rate of inflation plus a hike in investment activity, industrial output as well as the wages of the people.

The growth of the city’s economy and wages of Muscovites will continue next year, Sergei Sobyanin explained during a Moscow Government meeting.

“Moscow has emerged from a tough period marked by economic problems caused by the sanctions, changes in the rouble rate as well as the prices of raw materials. Today we have embarked on a steady-state growth path. This has been reflected in the draft city budget. We plan an income growth rate of about 5 percent annually,” the Mayor noted.

Traditionally, the economic and social development scenario is drafted in two versions, baseline and targeted (optimistic). For 2018-2020, the baseline forecast has been chosen which is based on a similar scenario option for Russia’s entire economy.

Restoring economic growth

In 2016, Moscow managed to adapt to the new conditions, which was low prices for hydrocarbons, rouble depreciation, economic sanctions as well as counter-sanctions. In 2017, the city’s economy started an upward trend again. This year, the growth of GRP is expected to total two percent, investment growth – about ten percent and an actual hike of wages – about three percent. Unemployment is at the lowest level.

The restoration of economic growth became possible due to the implementation of a number of system-based measures made by the Moscow Government. “Here, belong support of techno parks, industrial areas, special economic zones, tax benefits plus providing direct finance to emerging enterprises appropriated for infrastructure as well as the development of engineering services,” said Sergei Sobyanin.

This year’s accomplishments include:

-active investment policy targeted at improving the investment climate and helping to attract investment in the real sector of the economy;

-stable budget policy – improving competitiveness and transparency of the city order, budget investment in infrastructure, primarily in social and transport spheres;

-tax incentives policy designated at providing equal conditions and shifting tax liability accents from incomes to assets;

-weighted tariff policy aimed at restricting the growth of prices and cross-subsidisation.

The primary objective pursued by the measures is to create high-skilled and highly paid jobs for Muscovites. From next year on, salaries will increase in the education, healthcare, social security plus cultural spheres.

“As we can see, following a rather low-profile year 2015 that was characterised by a high level of inflation, in 2016 we have regained positive dynamics in the growth of real wages. In 2017, the tendency continues. We plan to keep raising Muscovites’ real salaries in the next three years,” added Vladimir Yefimov, a Moscow Government Minister and the Head of the Department for Economic Policy and Development.

An important marker of economic growth is the increase in business activity. Today in Russia every seventh individual entrepreneur works in Moscow. In the first half of 2017, 49,986 licences were issued, which is 1.4 times more against the same period the previous year.

The financial situation concerning Moscow-based enterprises is also improving. “Over the current year, interest rates have been lowered alongside with significantly extending amounts of corporate lending. The latter in its turn has led to an equally important result of reducing the amounts of overdue loans,” commented the Minister.

Energy consumption also has a positive effect on the business environment. Over a period of the first eight months of 2017, there has been a1.8 percent growth in power consumption. However, this data doesn’t include the consumption by the residential sector.

Plans for the upcoming years

Moscow’s basic socio-economic indicators are expected to improve between 2018-2020.

The average annual inflation rate is forecast to drop to 4.2 percent in 2020 against that of 4.8 percent in 2017, brought about by a cap on the regulated tariffs increase, moderately tight monetary policy plus more products in the consumer sector, including through import substitution.

The principal risks of inflation surpassing the forecast levels are related to possible changes in oil and gas prices and resulting devaluation of the rouble, as well as to increased production expenses.

Gross regional product is forecast to grow 2.1-2.3 percent a year between 2018-2020. Investment activities are set to remain high in Moscow. “Moscow has increased the volume of investments into its fixed capital by 70 percent since 2010, which is significantly better than that in the rest of the country. We forecast continued growth in fixed capital investments over a period of the next three years in the amount of 3 percentage points in real terms, ” Vladimir Yefimov said.

With 1.5 trillion roubles earmarked for the Targeted Investment Programme (TIP) between 2018-2020, it will remain an important driver in this area. About two thirds of the TIP will be spent on development of transportation.

Production growth is estimated to reach 3 percent annually between 2018-2020. Retail and paid services are expected to grow 1.6-2.2 percent annually as well.

Unemployment, by contrast, will decline. The balance of supply and demand on the labour market will mostly be maintained by the movement of labour force to and from Russian the regions plus other countries.