Russian economic developments_eng.7_2014 (1)

RUSSIAN ECONOMIC DEVELOPMENTS
No.7 2014
POLITICO ECONOMIC RESULTS IN JUNE 2014(S.Zhavoronkov) 2
INFLATION AND MONETARY POLICY IN MAY 2014(A.Bozhechkova) 6
FINANCIAL MARKETS IN JUNE 2014(N.Andriyevsky, E.Khudko) 10
THE REAL SECTOR OF ECONOMY IN JANUARY MAY 2014: FACTORS AND TRENDS (O.Izryadnova) 14
RUSSIAN INDUSTRY IN MAY 2014(S.Tsukhlo) 17
INVESTMENTS IN CAPITAL ASSETS IN JANUARY MAY 2014(O.Izryadnova) 20
FOREIGN TRADE IN APRIL 2014(N.Volovik) 24
STATE BUDGET IN JANUARY MAY 2014(T.Tischenko) 27
BANKING SECTOR IN MAY 2014(M.Khromov) 31
REAL ESTATE MARKET IN THE RF IN JANUARY APRIL 2014(G.Zadonsky) 34
MIGRATION IN RUSSIA IN JANUARY APRIL 2014(L.Karachurina) 38
REVIEW OF THE ECONOMIC LEGISLATION IN JUNE 2014(I.Tolmacheva, Yu.Grunina) 42
REVIEW OF TAXATION REGULATORY DOCUMENTS ISSUED IN THE PERIOD OF MAY JUNE 2014
(L.Anisimova)
43
© GAIDAR INSTITUTE FOR ECONOMIC POLICY
3 – 5, Gazetny pereulok, Moscow, 125 993, Russian Federa on
Phone (495)629 – 67 – 36, fax (495)697 – 88 – 16, Email: lopa na@iep.ru
www.iep.ru

RUSSIAN ECONOMIC DEVELOPMENTS No. 7, 2014
2
POLITICO ECONOMIC RESULTS IN JUNE 2014
S.Zhavoronkov
In June 2014 the Russian government authori es
made some changes to their viewing the events in
Ukraine. The interstate rela ons between Moscow
and Kiev warmed up a bit. For example, Russia’s Am-
bassador in Ukraine M. Zurabov, who was recalled in
February 2014 a er President Victor Yanukovich was
ousted, returned to Ukraine and a ended the inaugu-
ra on of the new President of Ukraine, which actually
implies that Zurabov was diploma cally recognized
by Ukraine. However, intensive military clashes us-
ing heavy weapons con nued in the Donetsk and Lu-
gansk regions between Ukrainian government troops,
including the Air Force, and the armed groups from
the self-proclaimed republics throughout the major
part of the month. Ukrainian government troops re-
captured the ini a ve, succeeding in bringing back
under government control the city of Mariupol, an
industrial center and seaport, as well as severed lines
of communica ons leading to the Russian border from
where the self-proclaimed republics received various
types of assistance. At the same me, the Ukrainian
government has no control over a vast territory of the
Donetsk and Lugansk regions. It is against this back-
ground that newly elected Ukrainian President Po-
roshenko announced on June 20 a unilateral ceasefire
for humanitarian purposes, as well as stated that he
has his own peace plan which basically boils down to
offering an amnesty for those who lay down the wea-
pons and did not commit serious crimes; providing a
corridor via which volunteers from Russia can leave
Ukraine; conduc ng an early local government elec-
on; and providing guarantees to use the Russian lan-
guage in business prac ce (a bit later he made public a
dra of a new Cons tu on of Ukraine which provides,
The situa on in eastern Ukraine and Russian-Ukrainian interstate rela ons saw a certain de-escala on in
June 2014. In par cular, Russia recognized new Ukrainian President P. Poroshenko. However, the situa on re-
mains to be tense. The east Ukrainian armed groups cannot see how they may exist within a unified state while
the government in Kiev cannot allow a secession of these regions. The Russian government authori es are look-
ing for a way out of the crisis, without losing face, but it hasn’t been found yet. At the same me, gas price nego-
a ons between Russia and Ukraine reached no agreement. Russia announced transi oning to prepayment for
natural gas supplies to Ukraine. Considering gas volumes accumulated by Ukraine, nego a ons on this subject-
ma er are likely to become more relevant in the upcoming fall. Ukraine cannot be excluded from Russia’s natural
gas transit, at the same me it won’t be able to strike its fuel balance alone, without Russia. A fierce dispute on
what should be done with the 2014 pension accruals, virtually pension savings as such, began in the Russian
Government. The standards of poten al infrastructural costs of the Na onal Wealth Fund (NWF) were increased,
however, new costs s ll remain to be agreed.
among other things, for governor elec ons). A few
days later a er this the leaders of the self-proclaimed
republics announced a ceasefire, and slow nego a-
ons were opened (during which mutual exchange of
fire con nued but less intensively) between them and
representa ves of the Ukrainian government, with the
par cipa on of representa ves from Russia and the
Organiza on for Security and Coopera on in Europe
(OSCE). Yet there is no visible subject-ma er to nego -
ate – the militants insist on independence of the self-
proclaimed republics from Ukraine, which the la er
cannot accept. President Pu n stated on June 25 that
he submi ed a proposal to the Federal Council (Rus-
sia’s upper house) to withdraw the approval for send-
ing Russian troops to Ukraine, which the upper house
gave to him on March 1, 2014. Russian TV channels
have lowered substan ally the degree of cri cism and
coverage of the Ukrainian government. At the same
me, a new trend has emerged, explaining that send-
ing Russian troops to eastern Ukraine is extremely dis-
advantageous, it is a trap which Russia is being lured
into by its western enemies.
It is hard to disagree with Russia’s official TV chan-
nels as far as a military incursion is concerned, when
they talk about disadvantages Russia might face in
case of incursion to eastern Ukraine. Indeed, it would
result in even tougher sanc ons against Russia. In fact,
developed countries may try to physically replace any
Russia’s export to the extent to which a replacement
may be found, as well as block Russia’s access to capi-
tal markets. It doesn’t mean that Russia would col-
lapse instantly upon such measures, but they would
be very painful for the country whose major revenues
are generated in one way or another from foreign

POLITICO-ECONOMIC RESULTS IN JUNE 2014
3
trade, given that the Russian economy isn’t in good
shape as it is, whether sanc ons are imposed or not.
However, the Russian federal government has put it-
self in a unfortunate situa on which it cannot escape
from just like that. Blocking the border with Ukraine
whereby the self-proclaimed republics will face a mili-
tary defeat from Ukrainian government troops would
cause a serious damage to Russia’s image domes cal-
ly. Keeping intact the situa on under which weapons
and military personnel are “leaking” through the bor-
der, allowing the self-proclaimed republics to preserve
a status quo, has started to cause damage to Russia’s
image too – death toll, damage assessment, and refu-
gees to Russia will keep growing. The topical ques on
to be answered today: what is the point of the con-
flict for Russia?, what do the Russian authori es want
to achieve?, what are people supposed to die for?
“Controlled chaos” theories are very popular among
military strategists, however none of them is likely to
confess that controlled chaos is what Russia is seeking
both on its own border and the territory where ethni-
cally close people live. A breakup among the militants
and readiness of a separated moderate group of them
to sign poli cal arrangements with Kiev might be most
realis c op on. Such an agreement could be a repre-
senta on of ra onal tradeoff given the current situa-
on.
Gas nego a ons with Ukraine have reached no
agreement. As a reminder, discrepancies between the
par es boiled down to the following issues: redemp-
on of the outstanding amount owned by Ukraine;
whether there are discounts under the 2010 agree-
ment on the Black Sea Fleet in the Crimea signed by
V. Yanukovich (because Russia considers the Crimea a
Russian territory while Ukraine doesn’t); the need to
enter into a new contract (this is what the Ukrainian
party is seeking) or respec ve sub-agreements to the
exis ng contract of 2009 which was signed by the go-
vernment chaired by Y. Timoshenko. The par es ma-
naged to bring together their posi ons, but failed to
reach an agreement – Ukraine redeemed a part of
the outstanding amount at the end of the previous
month, but refused to redeem the remainder un l a
full agreement is reached. Ukraine suggested $326 for
1000 cubic meters of gas, Russia offered $385 for 1000
cubic meters. Finally, on June 16, Russia announced
transi oning to prepayment for gas, hal ng gas sup-
plies to Ukraine while transi ng via Ukraine the gas
designated for Europe only. Furthermore, both par-
es filed lawsuits against each other to the Stockholm
Court of Arbitra on. They s ll have some me to be
able to reach an agreement, because Ukraine accumu-
lated 15 million cubic meters of gas in its gas under-
ground storages, which should help Ukraine out un l
approximately the upcoming new year. However, the
par es will have to come to an agreement when these
dates get closer: although both Russia and Ukraine are
seeking to reduce as much as possible their depend-
ence on the Ukrainian transit of Russian gas, almost
half of the gas consumed in Ukraine is supplied from
Russia, as well as half of the gas designated Europe is
transited via Ukraine. Mathema cally, the current dif-
ference in prices can be easily averaged to about $350
for 1000 cubic meters of gas.
In June 2014, Russia con nued its complicated ne-
go a ons with the European Union about The South
Stream gas pipeline project. As a reminder, the Euro-
pean Commission considers that the project fails to
meet the standards of the so-called “third energy
package”1
adopted in 2009 and effec ve since 2011,
under which the gas seller must either hold no control-
ling interest in its transiter (Gazprom holds 50% in The
South Stream gas pipeline project) or allow various le-
gal schemes under which transiter’s ac ons will have
to be approved by supervisory bodies established by
the European Union. Russia believes that The South
Stream gas pipeline project, first, legally exists before
the European Commission made the respec ve deci-
sions (its operator was established in 2008), second,
the third energy package as such contradicts various
agreements concluded between Russia and the Euro-
peanUnion,inwhichnodeteriora onofeconomiccon-
di ons of coopera on is s pulated. The final construc-
on of the gas pipeline – via the Black Sea to Bulgaria
and Serbia – ends in Austria (it was decided not to lay
the pipeline further to Italy via Slovenia, because the
demand for natural gas remains weak while the mar-
ket is compe ve in the South European Countries).
Russia signed interstate agreements with all these
countries, and construc on has been commenced this
year. However, Bulgaria announced its suspension in
June 2014. Bulgaria, one of the poorest countries in
the European Union, will receive more than 15bn euro
of financial aid from Brussels in the period of 2014 to
2020. The said amount is much bigger than a profit
worth a few billions of euro from The South Stream gas
pipeline. There are more circumstances though: Russia
is Bulgaria’s major trade partner, and Bulgaria depends
largely, even more than Ukraine does, on imported
Russia’s natural gas (85%). Austria and Serbia s ll de-
clare planned construc on. During his visit to Austria
President Pu n accused the United States of the prob-
lems faced by The South Stream gas pipeline project:
“…They are making every effort so that the contract is
not signed, for the purpose of supplying their own liq-
uefied natural gas”. Indeed, the gas pipeline isn’t quite
1 The conven onal name of a big package of energy direc ves
issued by the European Commission.

4
feasible economically, aside from substan al construc-
on costs (at least 15bn euro) via the deep Black Sea
and its transit costs which are well-known to be higher
than transit costs via Ukraine, but the ra onale is to
create an opportunity to substan ally replace gas tran-
sit via Ukraine (The South Stream gas pipeline project
is expected to have a capacity of 68 million cubic me-
ters, whereas the capacity of Ukrainian transit in 2013
was 86 billion cubic meters) whereby the Russian au-
thori es will have the freedom of poli co-economical
maneuvering. On the contrary, neither the United
States, nor many European countries would like to see
Russia enjoy such a freedom.
Late in June, Finance Minister Anton Siluanov and
Minister of Economic Development Alexei Ulyukayev
happened to have a bi er dispute on what should be
done with the 2014 pension accruals. As a reminder,
no new contribu ons have been made to the funded
pension scheme since H2 2013 upon the pretext of
“going public”, “providing guarantees”, etc., undertak-
ing reforms in pension funds. However, experts noted
at that me that the government’s policies resembled
a “creeping na onaliza on” of the money. In his in-
terview to Vedomis newspaper Mr. Ulyukayev stated
that he would suggest that the Russian Government
should return the pension accruals to their owners.
Mr. Siluanov stated expressly that the money had been
confiscated to support the Crimea and the city of Sev-
astopol: “……There are no sources for this, there is no
way the money can be returned, because it has been
spent on the Crimea, counter recession measures. This
resource s ll exists and is most likely to be spent to sup-
port the socio-economic development program in the
Crimea and the city of Sevastopol. Saying so easily that
we will return the money is an ill-es mated proposal
which wasn’t discussed. The author should be asked at
the cost of what it can be done”. The Russian govern-
ment authori es have an overwhelming tempta on to
confiscate the money from the funded pension com-
ponent – it is much easier than cut off budget expen-
ditures, besides, there are also hopes that individuals
won’t resent it, because the pension accruals are “vir-
tual”, they cannot be put in a pocket instantly. How-
ever, such hopes have no solid grounds – the intensity
of transfers of pension accruals from Vnesheconom-
bank (VEB) (6 million applica ons for money transfer
from VEB were submi ed at 2013 year-end alone, and
a total of 25 million persons have transferred their
money from VEB to date) is indica ve of individuals
being aware of the problem. It is also important that
many en es among owners of non-government pen-
sion funds (NGPF) are related to powerful state-run
companies (such as OJSC Russian Railways, Sberbank,
VTB) and major businessmen (for example, Gazfund is
affiliated with Y. Kovalchuk), and they don’t yarn for
the money to be spent in favor of the Crimea or the
state budget as such – in this context, public monopo-
lies and oligarchs are paradoxically ac ng as allies of
ordinary ci zens. One may hope that the pension ac-
cruals will stay intact, otherwise it cannot radically re-
solve the budget-related problems faced by this coun-
try (they amounted to a bit more than Rb 1 trillion at
2013 year-end), rather it will seriously discourage legal
labor and encourage “backdoor” incomes and tax eva-
sion and reduce social security contribu ons.
In June 2014, Prime Minister Dmitry Medvedev
signed an execu ve order which changed the proce-
dure for the management of assets of the Na onal
Wealth Fund (NWF). For now 40% of NWF’s resources
can be invested in any infrastructural projects or de-
posits in VEB which in its turn provides funding of in-
frastructural, and not always jus fied, costs, as is the
case with the venues and facili es constructed for
the Olympic Games in Sochi, projects, another 10% in
projects in which the Russian Direct Investment Fund
(RDIF) is par cipa ng, another 10% in Rosatom (The
State Atomic Energy Corpora on) projects, therefore
making up 60% or less. At a first glance, non-conser-
va ve instruments in investment have increased sub-
stan ally (from 40 to 60%), however, this has been an
“on-paper” increase so far. For example, the RDIF is
unlikely to choose its limit simply by virtue of its own
rules which require foreign co-funding. The rest of the
costs will be approved on a case-by-case basis, same as
before. In general, however, another formal obstacle
to large-scale spending of the NWF resources will be
removed. These resources were equitably meant to be
a stabiliza on instrument for the pension system, not
a development ins tu on. It was already announced
about the alloca on of resources to extend The Bai-
kal-Amur Mainline (BAM Railway) and Trans-Siberian
Railway, construct the Central Ring Motor Road. Under
discussion is alloca on of resources for the construc-
on of nuclear power sta ons in Turkey and Finland,
expansion of the capaci es of the Moscow air hub, the
Moscow-Kazan High-Speed Railway, construc on of a
gas pipeline to China, etc. The common problem re-
mains the same: all the projects formally declare pay-
back, although it is not just unobvious, but rather un-
likely to happen for many of them, as is the case with
the Moscow-Kazan High-Speed Railway which have no
new passenger traffic, not to men on a new cargo traf-
fic. A similar situa on is being faced by the BAM Rail-
way which currently, prior to any expansion, isn’t ope-
ra ng at full capacity, and goes via desert areas where
a hypothe cal emergence of industrial clusters is s ll
hypothe cal, as it used to be in the Soviet era. It would
be reasonable to focus on projects which replace ca-

POLITICO-ECONOMIC RESULTS IN JUNE 2014
5
paci es that are visibly falling short (a good example
of this is the Moscow air hub whose capaci es are seri-
ously falling short, and profit from its expansion can be
more or less visible), but it actually is referred to a non-
transparent struggle between lobbyists, the economy
of the projects remains unpublished and undiscussed.
In June 2014, the fact that The Inves ga ng Com-
mi ee of the Russian Federa on was empowered to
ini ate at its own discre on criminal cases on tax eva-
sion, without having to obtain approval of the Federal
Tax Service of Russia (FTS of Russia), had an adverse
effect on the business community. The former pro-
cedure which was introduced in 2011, relieved dras-
cally the pressure from businesses – the number of
criminal cases was reduced by six mes (!), however,
representa ves of security and law enforcement agen-
cies were not happy at all. In 2013, President Pu n
supported the ini a ve of A. Bastrykin, Head of The
Inves ga ng Commi ee of the Russian Federa on, on
empowering inves ga on officers to ini ate criminal
cases at their own discre on. A respec ve dra law
was adopted in the first reading, but a hope remained
that it might be changed in the second reading. How-
ever, no improvement was achieved as a result of con-
sulta ons between the Inves ga ng Commi ee and
the FTS of Russia. For now inves ga on officers in the
FTS of Russia will request a “cer ficate” and then they
can do what they want to do, no ma er what is wri en
in the cer ficate, even though no criminal offence has
been commi ed according to the FTS of Russia. How-
ever, they say that damage, if established, must be as-
sessed using the method of the FTS of Russia, thereby
making it less possible for an arbitrary interpreta on
to happen.
Deputy Minister of Industry and Trade of Rus-
sia A. Rakhmanov was appointed CEO of the United
Shipbuilding (USBC), the fourth CEO over the last few
years; former CEO V. Shmakov – from UralVagonZa-
vod – held the office as li le as one year and fell afoul
of the core department. Running short of either public
or interna onal contracts, the shipbuilding industry
has found itself in a vicious circle – financial problems
are interfering with the performance of the exis ng
contracts, while failure to honor some contracts has
resulted in losing a few customers that have le – as
was the case with India, a er a years-long delay in the
performance of an aircra carrier contract. As far as it
can be understood, Shmakov had an objec ve to reori-
ent the shipbuilding industry to meet the needs of the
Fuel and Energy Complex, in par cular the produc on
and transporta on of offshore hydrocarbons. The ob-
jec ve s ll remains to be fulfilled though.

6
INFLATION AND MONETARY POLICY IN MAY 2014
A.Bozhechkova
Infla on in the Russian Federa on remained at
a high level in May 2014: the consumer price index
stood at 0.9% at the month’s end (compared to that
in April 2014 – 0.9%), showing an increase of 0.2 p.p.
over the value observed in 2013. Therefore, infla on
reached 7.6% on an annualized basis (Fig. 1). Core
infla on1
in May 2014 stood at 0.9%, also higher, up
0.6 p.p., than the value observed in the previous year.
In May 2014, prices of food products increased 1.5%
compared to April 2014 (Fig. 2). Prices of the following
food products saw higher growth rates: (from 2.3% in
April to 2.4% in May 2014), pasta products (from 0.3%
in April to 0.8% in May 2014), meat and poultry (from
1.5% in April to 4.4% in May 2014). Prices of the fol-
lowing food products saw slower growth rates: grains
and beans (from 1.4% in April to 1.0% in May 2014),
bu er (from 1.4% in April to 1.0% in May 2014), milk
and dairy products (from 1.8% in April to 0.9% in
May 2014), granulated sugar (from 3.0% in April to
1.5% in May 2014), prices of eggs kept declining (-2.3%
in April, -11.7% in May 2014).
In May, prices and tariffs of retail paid services in-
creased 0.8%, while in April 2014 they increased 0.7%.
Overall, tariffs of public u li es in May increased 0.8%,
while in April 2014 they remained unchanged. Prices
of the following services increased in May: insurance
services (from 2.2% in April to 3.2% in May 2014), ser-
vices rendered in the physical culture and sports sec-
tor (from 0.2% in April to 0.3% in May 2014). Prices of
the following services fell in May: interna onal travel
services (from 2.3% in April to 1.6% in May 2014), pas-
senger transport services (from 2.4% in April to 1.2%
in May 2014), medical services (from 1.4% in April to
0.6% in May 2014), early childhood educa on services
(from 0.8% in April to 0.4% in May 2014).
1 The baseline consumer price index is an indicator which de-
scribes the level of infla on in the consumer market, net of sea-
sonal factors (prices of fruit and vegetable products) and adminis-
tra ve factors (tariffs of regulated types of service, etc.). The index
is also calculated by the Federal State Sta s c Service of Russia
(Rosstat).
In May 2014, the consumer price index stood at 0.9% (0.7% in May 2013), being equal to the value observed in
the previous month. Therefore, infla on stood at 7.6% at the end of the 12-month period. The consumer price
index reached 0.4% within 23 days in June 2014. as of June 1, 2014 banks’ debt owed to the regulator amounted
to Rb 5.02 trillion. In May 2014, the value of the dual-currency basket contracted by 3% to Rb 40.4 and further
declined by 3.2% to Rb 39.3 at the end of 27 days in June 2014.
In May, growth rate of prices of non-food pro-
ducts slowed down by 0.1 p.p. rela ve to April 2014
and stood at 0.5%. Prices of the following non-food
products saw faster growth rate: washing and clean-
ing products (from 0.5% in April to 1.1% in May 2014).
Growth rate of prices of the following non-food pro-
ducts slowed down: tobacco products (from 4.6% in
April to 3.3% in May 2014), motor gasoline (from 0.8%
in April to 0.5% in May 2014), electrical products and
household appliances (from 0.5% in April to 0.3% in
May 2014), footwear (from 0.6% in April to 0.4% in
May 2014).
In June 2014, infla on kept growing due to growth
in prices of certain categories of fruit and vegetable
products, red meat and poultry, millet. It’s worth not-
ing that a deprecia on of the ruble exchange rate
made a major contribu on to the accelera on of infla-
on having regard to a great share of imported goods
in the consump on of economic agents in the Russian
Federa on. There were more nonmonetary factors
that pushed up infla on in January-June 2014: the re-
stric ons imposed by the Rosselkhoznadzor (Federal
Service for Veterinary and Phytosanitary Surveillance)
on import of meat from the EU countries and the Unit-
ed States early in the year, livestock reduc on due to
a fodder shortage, adverse weather condi ons in cer-
tain countries, as well as decline in shipments of cer-
tain categories of agricultural products from Ukraine.
0,0%
2,0%
4,0%
6,0%
8,0%
10,0%
12,0%
01.01.2011
01.04.2011
01.07.2011
01.10.2011
01.01.2012
01.04.2012
01.07.2012
01.10.2012
01.01.2013
01.04.2013
01.07.2013
01.10.2013
01.01.2014
01.04.2014
Source: The Federal State Sta s c Service of Russia (Rosstat).
Fig. 1. CPI growth rate in 2011 to 2014 (% year over year)

7
The consumer price index stood at 0.4% within 23 days
in June 2014 (0.4% in the same period of 2013). The
lack of pronounced demand-driven pressure on prices,
as well as the Bank of Russia’s policies aimed at ght-
ening the monetary policy remain the key factors con-
straining infla on.
In May 2014 the monetary base (broad defini on)
contracted by 1.1% to Rb 9326.1bn (Fig. 3). The vol-
ume of cash in circula on including cash balances
in credit ins tu ons declined 1.6% to Rb 7752.9bn,
banks’ deposits shrank 10.6% to Rb 88.1bn. The fol-
lowing components of the broad monetary base saw
an increase: banks’ correspondent accounts (growth
of 3.3% to Rb 1050.3bn), obligatory reserves (a growth
of 0.7% to Rb 434.8bn).
In May 2014, the monetary base (narrow defini-
on) (cash plus obligatory reserves) shrank 1.5% to
Rb 8187.7bn (Fig. 4).
In May, the volume of excessive reserves at com-
mercial banks amounted to Rb 1329.4bn, with manda-
tory reserves on special accounts with the Central Bank
amoun ng to Rb 434.8bn, while the average value of
reserves in the period of 10.05.2014 to 10.06.2014
amounted to Rb 894.6bn. As of June 1, 2014, banks
owed Rb 5.02 trillion to the regulator, seeing a mid
decline of 0.7% since the beginning of May 2014.
Bank’s debt on REPO transac ons declined 12.3%
to Rb 2.8 trillion, the debt on loans secured by non-
market assets amounted to Rb 2.1 trillion, an in-
crease of 21.3%. According to the data available as
June 26, 2014, banks’ debt on REPO transac ons saw a
decline to Rb 2.6 trillion, while the debt on other loans
increased to Rb 2.4 trillion. It should be noted that the
Bank of Russia used REPO opera ons at a flat rate, in
par cular, an average of Rb 12,1bn were provided dai-
ly in May and June 2014 respec vely. Furthermore, on
May 20 and 21, 2014 the interest rate approximated
very close to the interest rate cap. On the foregoing
dates the volume of REPO opera ons at the flat rate
amounted to Rb 15.9bn and Rb 11.8bn respec vely.
The interbank interest rate 1
in May stood at 8.2% on
average (7.9% in April 2014). In the period of June 1
thru June 25 the average interbank interest rate stood
at 8.2% (Fig. 5). The average interbank interest rate in-
creased in May 2014 in response to the Bank of Rus-
sia’s April 25, 2014 decision to li the key interest rate,
as well as interest rates on liquidity provision and ab-
sorp on instruments, from 7.0% to 7.5% p.a., in order
to mi gate risks of accelera ng infla on and ensure
financial stability.
The Bank of Russia provided banks with Rb 485.8bn
at a cut-off rate of 7.77% p.a. as part of a 3-month
1 Interbank interest rate is the monthly average MIACR, an inte-
rest rate on ruble-denominated overnight interbank loans.
repo auc on secured by non-market assets held on
May 12, 2014. During a similar auc on held on May 12,
the Bank of Russia provided at total of Rb 485.8bn at
a rate of 7.77% p.a. However, only large banks which
have the required collateral base can afford such ac-
ons despite very beneficial terms of lending at a float-
ing interest rate.
As of June 1, 2014, the Central Bank’s interna onal
reserves totaled $467.2bn, shrinking by 8.3% year to
date (Fig. 4). At the same me, the monetary gold re-
serves shrank $1.2bn in May 2014 due to a nega ve
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
01.01.08
01.06.08
01.11.08
01.04.09
01.09.09
01.02.10
01.07.10
01.12.10
01.05.11
01.10.11
01.03.12
01.08.12
01.01.13
01.06.13
01.11.13
01.04.14
food products non-food products services
Fig. 2. Infla on factors in 2008 to 2014
(%, rela ve to the same month of the previous year)
0
1000
2000
3000
4000
5000
6000
01.01.2008
01.05.2008
01.09.2008
01.01.2009
01.05.2009
01.09.2009
01.01.2010
01.05.2010
01.09.2010
01.01.2011
01.05.2011
01.09.2011
01.01.2012
01.05.2012
01.09.2012
01.01.2013
01.05.2013
01.09.2013
01.01.2014
01.05.2014
Blnrubles
Overnight loans' debt Other loans' debt Lombard loans' debt
REPO debt Unsecured loans
Fig. 3. Commercial banks’ debt owed
to the Bank of Russia in 2008 to 2014
370
420
470
520
570
620
670
720
770
820
3600
4100
4600
5100
5600
6100
6600
7100
7600
8100
29.12.07-4.01.08
3-9.05.08
6-12.09.08
10-16.01.09
16-22.05.09
19-25.09.09
22-28.01.10
28.05-3.06.10
1-7.10.10
7-13.02.11
14-20.06.11
18-24.10.11
21-27.02.12
26.06-2.07.12
30.10-5.11.12
5-11.03.13
15-20.07.13
18-25.11.13
28.03-04.04.2014
billionsofdollars
billionsofrubles
Monetary base (billion rubles)
Gold and Foreign Currency Reserves (billion dollars)
Fig. 4. Dynamics of the monetary base (narrow
defini on) and gold and foreign currency (interna onal)
reserves of the Russian Federa on in 2007 to 2014

8
revalua on of assets. The contrac on of the interna-
onal reserves in the period of January 2014 to April
2014 was basically caused by the regulator’s foreign
currency interven ons aimed not only at fla ening
vola lity of the ruble exchange rate, but also its retain-
ing against in the face of the observed deprecia on of
developing countries’ na onal currency exchange rate
and unstable geopoli cal situa on in Ukraine.
Bank of Russia’s foreign currency interven ons
through net purchases of foreign exchange amounted
to $1072.0m and 95.0m euro by the end of May 2014
(Fig. 6). In May, the regulator’s opera ons on the pur-
chase of foreign currency with regard to the Federal
Treasury replenishing or spending foreign currency
resources of sovereign funds amounted to $1268m.
In the same month the borders of the dual-currency
trading band were extended and maintained within a
range of Rb 36.40–43.40. In the period of June 1 thru
June 26, 2014, the dual-currency trading band re-
mained unchanged as well. At the same period, Bank
of Russia’s foreign currency interven ons with regard
to the Federal Treasury replenishing or spending fo-
reign currency resources of sovereign funds totaled
$1510m.
According to the Bank of Russia’s preliminary es -
mates, net capital ou low from the country reached
достиг $50.6bn in Q1 2014, 1.8 mes more than in
the same period of 2013. Capital ou low from Rus-
sia amounted to $59.7bn within 12 months in 2013.
In Q1 2014, net capital exports by the banking sector
and other sectors reached $18.9bn and $31.7bn re-
spec vely. A substan al capital ou low from Russia
in Q1 2014 was determined by economic slowdown in
the country as well as geopoli cal turmoil.
In May 2014, the real effec ve exchange rate of the
ruble gained 2.6% (2.7% in April 2014). Overall, in the
period of January to May 2014 he real effec ve ex-
change rate fell 7.7% as compared to the correspond-
ing period in 2013 (Fig. 7).
In May, the dollar-ruble exchange rate lost 2.3%
to Rb 34.74, while the euro-ruble exchange rate lost
3.6% (Rb 47.3). In May, the euro-dollar exchange rate
averaged 1.37. The value of the dual currency basket
declined 3% to Rb 40.4 during the same month. At the
end of 27 days in June 2014, the dollar-ruble exchange
rate fell 3.3% to Rb 33.75, while euro-dollar exchange
rate declined 3.2% to Rb 46.02, resul ng in a decline
of 3.2% (to Rb 39.3) in the value of the dual currency
basket. The euro-dollar exchange rate in June 2014
was equal to 1.36. It should be noted that the ruble
weakened against the dollar in January–April 2014 ba-
sically in response to a more intensive capital ou low
from the country due to unstable geopoli cal situa-
on in Ukraine, op mis c projec ons about economic
growth in the United States and European Union,
economic slowdown in the Russian Federa on. The
ruble appreciated in the period of May to June 2014
in response to the Bank of Russia’s policy aimed at
li ing the key interest rate, mi ga ng panic investor
sen ments about the likelihood of Russia’s interven-
on into the poli cal situa on in Ukraine, as well as
2
3
4
5
6
7
8
9
10
10.01.2012
13.02.2012
20.03.2012
23.04.2012
29.05.2012
03.07.2012
06.08.2012
07.09.2012
11.10.2012
15.11.2012
19.12.2012
30.01.2013
05.03.2013
09.04.2013
20.05.2013
24.06.2013
26.07.2013
29.08.2013
02.10.2013
06.11.2013
10.12.2013
21.01.2014
24.02.2014
31.03.2014
06.05.2014
10.06.2014
MIACR rate on ruble loans for 1 day in the interbank market
Minimum REPO rate at Auction for One Day and for One Week
Deposit Rate for One Day
The Fixed Rate on Operatons to Provide Liquidity
Overnight Rate
Maximum rate at Deposit Auction for One Week
Fig. 5. Bank of Russia’s interest rates band and dynamics
of the interbank lending market in 2012 to 2014 (% p.a.)
-20000
-10000
0
10000
20000
30000
Mar10
Jun10
Sep10
Dec10
Mar11
Jun11
Sep11
Dec11
Mar12
Jun12
Sep12
Dec12
Mar13
Jun13
Sep13
Dec13
Mar14
0
10
20
30
40
50
millionsofUSdollars
rubbles
Currency interventions ("+" - net purchase, "-" - net sales)
Official currecy basket / Rub (end of period)
Fig. 6. Bank of Russia’s currency interven ons
and ruble exchange rate vs. the currency
basket in March 2010 to May 2014
0
50
100
150
200
20
25
30
35
40
45
50
55
jan05
jun05
nov05
apr06
sep06
feb07
jul07
dec07
may08
oct08
mar09
aug09
jan10
jun10
nov10
apr11
sep11
feb12
jul12
dec12
may13
oct13
mar14
Official USD/RUR exchange rate (end of period)
Official EUR/RUR exchange rate (end of period)
Value of the two-currency basket
Real effective exchange rate index (right scale)
Fig. 7. Ruble exchange rate indicators
in January 2005 to May 2014

9
the lack of severe economic sanc ons against Russia
over the Crimea’s accession to the Russian Federa on,
as well as growth in prices of crude oil in response to
unfavorable development of the geopoli cal situa on
in the Middle East countries. The dollar slightly appre-
ciated against the euro a er the ECB lowered the key
interest rate by 0.1 p.p. from 0.25% to 0.15% p.a., as
well as the overnight deposit rate from 0 to -0.1% p.a.
and the lending rate from 0.75 to 0.4% p.a. aimed at
s mula ng investment ac vity in the Eurozone.

10
FINANCIAL MARKETS IN JUNE 2014
N.Andriyevsky, E.Khudko
Dynamics of the Russian stock market basic
structural indices
The MICEX Index in June 2014 went up to the le-
vel observed at the end of February 2014. The Index
monthly average was 1486.0 points in the period be-
tween June 2 and 26, 2014.
The ﬁrst week in June 2014 saw steady growth in
most liquid stocks. By June 11, they gained an average
of 5.0%, except for VTB’s shares which didn’t grow
during the same period. As a reminder, VTB’s shares
were growing within a period of three months since
the beginning of March, reaching maximum of 5.1 ko-
peks per share on June 4, 2014. However no news that
might have had an impact on the dynamics of VTB’s
stock could be found. At the second decade of June dy-
namics of the most liquid stocks saw various changes:
growth rates in Sberbank’s shares dropped to zero,
whereas growth rates of LUKOIL’s and Rosne ’s shares
increased by more than 7.5% since the beginning of
the month. However, LUKOIL’s shares began to lose in
value by the end of the month, and neither purchase
of shares by the LUKOIL managers, nor distribu on of
2013 dividends, 22% more than in 2012, could pro-
mote any growth. At the same me, growth rates of
Rosne ’s shares remained at 10% since the beginning
of the month.
Sberbank’s shares showed a nega ve annual yield
by June 26, 2014, with annual loss on common and
preferred shares reaching 9.8% and more than 0.5%
respec vely since June 27, 2013. VTB Bank’s shares
sustained a loss of 9.7% since June 27, 2013. No-
rilsk Nickel’s and Gazprom’s shares gained most dur-
ing the year. The iron-and-steel works gained 43.2%
while Gazprom gained 37.0% in the period between
June 27, 2013 and June 26, 2014. Distribu on of 2013
dividends varied within a range of 2.34% of VTB Bank’s
shares on June 26, 2014 and 6.98% of Norilsk Nickel’s
shares closing value on the same date.
In June 2014, the MICEX Index fully recovered the loss sustained in May, the monthly average index reached
1486.0 points. VTB Bank’s shares stopped growing in value in June, losing more than 10.6% in the period be-
tween May 30, 2014 and June 26, 2014. The Moscow Exchange trading volume reached Rb 620.5bn in the period
between June 2 and 26, 2014. The stock exchange capitaliza on amounted to Rb 23.63 trillion (36.4% of GDP)
as of June 26, 2014.
The key corporate bond market indicators, such as market volume and index, ac vity of issuers and investors
improved in June 2014. At the same me, stabiliza on at high level of bond issue yield and reduc on in dura-
on cons tute an adverse factor in the bond market.
90
95
100
105
110
115
120
1200
1250
1300
1350
1400
1450
1500
1550
1600
02.05.2013
02.06.2013
02.07.2013
02.08.2013
02.09.2013
02.10.2013
02.11.2013
02.12.2013
02.01.2014
02.02.2014
02.03.2014
02.04.2014
02.05.2014
02.06.2014
MICEX Index Brent crude oil prices (right-hand scale)
Source: RBK Quote.
Fig. 1. Dynamics of the MICEX Index and
futures prices of Brent crude oil in the period
between April 2, 2013 and June 26, 2014
-12,0
-9,0
-6,0
-3,0
0,0
3,0
6,0
9,0
12,0
15,0
30.05.14
02.06.14
03.06.14
04.06.14
05.06.14
06.06.14
09.06.14
10.06.14
11.06.14
16.06.14
17.06.14
18.06.14
19.06.14
20.06.14
23.06.14
24.06.14
25.06.14
26.06.14
Sberbank Sberbank prev Gazprom Norilsk nickel
LUKOIL Rosneft VTB
Source: RBK Quote, author’s es mates.
Fig. 2. Growth rates of most liquid Russian
stocks in the Moscow Exchange in June 2014
(within a period since May 30, 2014)
Fig. 3. Growth rates of most liquid
Russian stocks in the Moscow Exchange
in the period between June 27, 2013 and June 26, 2014
-9,8
-0,5
37,0
9,2 11,8
43,2
-9,7-20
-10
0
10
20
30
40
50
Sberbank
Sberbank
prev
Gazprom
LUKOIL
Rosneft
Norilsk
nickel
VTB
27.06.2013–26.06.2014

11
The oil and gas sector index went up 5.85% in the
period between May 30, 2014 and June 26, 2014,
gaining most among the sector indices in June 2014
in response to growth in prices of raw materials. The
consumer sector index increased 5.09% since the be-
ginning of June, in response to higher value of pharma-
ceu cal companies Pharmstandard and Veropharm.
Other sector indices increased more than 2% since the
beginning of the month, except for dynamics of the
MICEX-innova on index which lost 4% during the first
half of the month. It was not un l June 24, 2014 that
this index managed to recover to the level observed
at the beginning of the same month. It is worth not-
ing that the finance and banking sector index lost 2%
in growth during the period between June 24 and
June 26, 2014, reaching a total loss of 1.35% since the
beginning of the month.
Trading turnover in the Moscow Exchange in
the period between June 2 and 26, 2014 reached
Rb 620.5bn, a growth of 6.34% over the correspond-
ing period in May 2014. Sberbank contributed an ave-
rage 28.8% to the stock exchange turnover on a total
of common and preferred stocks. It is only Gazprom,
accoun ng for an average of 15.4% of the Moscow
Exchange turnover in June 2014, that was able to
compete with Sberbank. Therefore, the two ma-
jor companies accounted for more than 47% of the
trading turnover in the Moscow Exchange, whereas
the next top-5 companies contributed an average of
28.0%. the eight most traded shares accounted for
an average of 75.7% of the Moscow Exchange daily
trading turnover.
According to the Emerging Por olio Fund Research
(EPFR), founda ons inves ng in Russian shares saw
$108m of capital ou low in the period between
May 29, 2014 and June 25, 2014. Moscow Interbank
Currency Exchange (MICEX) capitaliza on amounted
to Rb 23.6 trillion (36.4% of GDP) as of June 26, 2014,
an increase of more than Rb 588bn (2.55%) in the pe-
riod since May 30. In June 2014, the share of mineral
produc on companies increased 1.37% to 48.9% in the
-5,0
-3,0
-1,0
1,0
3,0
5,0
7,0
9,0
30.05.2014
02.06.2014
03.06.2014
04.06.2014
05.06.2014
06.06.2014
09.06.2014
10.06.2014
11.06.2014
16.06.2014
17.06.2014
18.06.2014
19.06.2014
20.06.2014
23.06.2014
24.06.2014
25.06.2014
26.06.2014
Financial and banking companies Machine building companies
Oil and gas companies Energy companies
Metal & mining companies Consumer sector companies
ММВБ - инновации
MICEX capitaliza on structure. At the same me, the
share of financial companies shrank by 1.5% to 13.0%.
Corporate bond market
The Russian domes c corporate bond market vo-
lume (measured by the par value of outstanding se-
curi es denominated in the na onal currency, includ-
ing those issued by non-residents) increased a bit in
June 2014 a er a decline in the period of March to
April 2014. By the end of June this indicator increased
up to Rb 5 273.7bn, a growth of 0.5% over the value
Fig. 4. Growth rates in various sector stock indices in the
Moscow Exchange (within a period since March 27, 2014)
-5,0
5,0
15,0
25,0
35,0
45,0
55,0
65,0
30.05.2014
02.06.2014
03.06.2014
04.06.2014
05.06.2014
06.06.2014
09.06.2014
10.06.2014
11.06.2014
16.06.2014
17.06.2014
18.06.2014
19.06.2014
20.06.2014
23.06.2014
24.06.2014
25.06.2014
26.06.2014
Sberabank (common+ privilege shares) Gazprom LUKOIL Rosneft Norilsk nickel VTB Magnit Total
Fig. 6. Trading turnover structure in the Moscow Exchange (in the period between May 30, 2014 and June 26, 2014)
Mineral
extraction
industry; 48,9
Manufacturing
industry; 12,7
Production and
distribution of
electric power,
gas, and water;
4,5
Wholesale and
retail industry;
repair services;
9,8
Transport and
communications;
10,0
Financial
business; 13,1
Other types of
activity; 1,0
Source: The Moscow Exchange’s official website, authors’ es-
mates.
Fig. 5. Stock market capitaliza on structure
by type of economic ac vity

12
observed at the end of May1
. It should be noted that
the number of issues decreased insignificantly over
the elapsed period (1030 corporate bond issues re-
gistered in the na onal currency against 1034 issues
at the preceding month end). The number of issuers in
the debt segment decreased too (345 issuers against
353 companies in the preceding month). There were
17 outstanding issues of USD-denominated bond is-
sues of Russian issuers (a total of more than $2,7bn)
and an outstanding JPY-denominated bond issue.
Investment ac vity in the secondary corporate bond
market in June 2014, resumed, a er a seasonal down-
trend in May, to its average level observed over the
last few months. For instance, in the period between
May 22, 2014 and June 23, 2014 the total volume of
transac ons in the Moscow Exchange amounted to
Rb 108.9bn (to compare, trading volume amounted to
Rb 76,3bn in the period between April 22, 2014 and
May 21, 2014), while the number of transac ons in the
period under review increased up to 25,200 (the num-
ber of transac ons in the previous period amounted
to 23,800)2
.
The Russian corporate bond market index IFX-
Cbonds kept growing, its value gained 3.8 points (or
1.0%) by the end of June over the value observed in
at end of the preceding month. However, the bond
average weighted yield increased insignificantly again,
from 9.43% at the end of May to 9.48% by the end of
June (Fig. 7)3
. Furthermore, nega ve dynamics of the
dura on of the corporate bond por olio increased:
dura on was 472 days as of the end of June, 82 less
than the value observed as of the end of previous
month. In this case, the dynamics can be explained by
both shortening of the maturity of bonds and a mid
gain in the market yield.
The most liquid segment of the corporate bond
market saw different trends towards the yield of bond
issues. Some issues of companies opera ng in the pro-
duc on and financial sectors showed highest vola lity.
For instance, OJSC METALLOINVEST, OJSC ALFA-BANK,
OJSCNoriskNickelsawasubstan aldecline(morethan
1 p.p.) in the yield on their securi es. OJSC Gazprom-
ne and OJSC Federal Grid Company of United En-
ergy System saw a growth in the yield. Furthermore,
it should be noted that higher than normal vola lity
in interest rates was observed along with increase in
trading ac vity (volume of transac ons on certain is-
sues of the foregoing issuers increased Rb 0.5bn over
the period under review). At the same me, produc-
ing companies lost an average loss of 0.36 p.p. in the
yield of their securi es. Moreover, financial companies
1 According to Rusbonds informa on agency.
2 According to Finam Investment Company.
3 According to Cbonds Informa on Agency.
also saw a decline, not nearly as substan al as that of
producing companies though, in the yield of their se-
curi es.
The indicators of registra on of new bond issues
again made new records over the last few months. For
example, 15 issuers registered 70 bond issues at an ag-
gregate par value of Rb 489.6bn in the period between
May 22, 2014 and June 23, 2014 (to compare, 61 bond
issues at Rb 304.4bn were registered in the period be-
tween April 22, 2014 and May 21, 2014), which can be
explained by reduced access to foreign funding. Ma-
jor bond issues were registered by State Corpora on
‘Bank for Development and Foreign Economic Affairs
(Vnesheconombank) (a bond issue at Rb 212.6bn),
LLC VTB Capital Finance (26 bond issues at a total of
Rb 110bn), LLC VTB Leasing Finance (eight issues of ex-
change bonds at Rb 68bn), OJSC Otkry ye Holding (six
issues of exchange bonds at Rb 31.5bn)4
. It is worth
no ng with regard Vnesheconombank that it was a
private offering, and the securi es are to be purchased
by the Central Bank of Russia. Exchange traded bonds
accounted for only one third of all the bond issues that
were registered, but there were a few debut issues
among the registered bond issues.
Twenty one issuers issued 24 bond issues at an
aggregate par value of Rb 82.9bn in the period be-
tween May 22, 2014 and June 23, 2014 (to compare,
15 series of bonds at a par value of Rb 51.38bn were
issued in the period between April 22, 2014 and
May 21, 2014) (Fig. 8). The largest bond issues were
issued by ОАО Bashne Joint-Stock Company (a series
of exchange traded bonds at Rb 10bn), ОАО Gazprom-
bank (a series of exchange traded bonds at Rb 10bn),
and CJSC Unicredit Bank (a series of exchange traded
bonds at Rb 10bn). Exchange traded bonds accounted
for more than a half of the issues. Despite the remai-
ning risks and capital ou low from Russian assets, two
mortgage agents managed to raised funds for a period
4 According to Rusbonds informa on agency.
Source: According to Cbonds Informa on Agency .
Fig. 7. Dynamics of the Russian corporate bond
market index and average weighted yield

13
of 32 and 25 years while another three issuers ma-
naged to borrow for a period of 10 years.
In June 2014, seven bond issues of LLC VTB Capi-
tal Finance, one of the major bond issuers, were de-
clared void and cancelled for registra on by the Bank of
Russia for non-placement of a single bond (eight bond
issues were declared void on the same grounds in the
preceding month)1
. Considering that in June 2014 the
said company registered 26 issues more, one can say
the issuer itself changed me limits of the fundraising
program.
Twenty issuers were to redeem their bonds at an
aggregate value of Rb 52.3bn in the period between
May 23, 2014 and June 23, 2014, however one of
them failed to honor its obliga ons and declared a
technical default (all issuers redeemed their bonds in
the preceding period). Twenty four corporate bond
issues at a total of Rb 89.4bn are to be redeemed in
Julyl 20142
Addi onally, technical defaults on the coupon
yield and on the put date were declared in the pe-
riod between May 23, 2014 and June 23, 2014. How-
1 According to the Bank of Russia.
2 According to Rusbonds company.
ever, no real defaults3
on coupon yield payment and
early redemp on of securi es on the put date and
full repayment4
were reported, like in the previous
months.
3 I.e. situa ons when the issuer is unable to pay to bondholders
even within a “grace period”.
4 According to Rusbonds company.
Source: According to Rusbonds informa on agency.
Fig. 8. Dynamics of ini al public oﬀerings of corporate
bonds denominated in the na onal currency

14
THE REAL SECTOR OF ECONOMY IN JANUARY MAY 2014:
FACTORS AND TRENDS
O.Izryadnova
In the beginning of 2014, the economic and poli -
cal uncertainty in the country intensified the drop in
investment demand. In Q1 2014, the effect of that pro-
cess was reduced because of a fairly high consumer
demand which was jus fied by growth in infla onary
expecta ons due to deprecia on of the ruble. Within
the same period, another factor which underpinned
GDP growth rates at the level which was not lower
than the index of the previous year was growth in con-
tribu on of the net export which situa on is related
to higher rates of reduc on of the import against the
dynamics of deliveries of Russian goods to foreign
markets. The analysis of the dynamics and the pa ern
of GDP in Q1 2014 shows that the dynamics of eco-
nomic growth was nega vely affected by reduc on of
the rates of produc on of the gross added value (GAV)
in mining, u li es (electricity, water and gas), building
industry and agriculture with posi ve growth in GAV
in manufacturing. A contribu on by such industries
In the first five months of 2014, the economic situa on was determined by slowdown of growth rates of con-
sumer demand and a drop in investments. In January–May 2014, investments in capital assets decreased by 3.8%
against the index of the respec ve period of the previous year. In January–May 2014, the retail trade volume
increased by 3.1% against 3.9% a year earlier. A posi ve contribu on to the dynamics of the economic develop-
ment is made by recovery of output growth in manufacturing. In January–May 2014, manufacturing output index
amounted to 103.2% against 98.9% a year before with a high differen a on of produc on rates in different sec-
tors which situa on is primarily jus fied by prevalence of nega ve trends in produc on of capital goods.
as trade and transport to the dynamics of economic
growth decreased, too. Indices of the financial sector
and real-estate opera ons, as well as such socially im-
portant types of ac vi es as educa on and healthcare
grew at an advanced rate against GDP.
A er a drop in January, in February–May 2014 the
industry indices demonstrated growth year on year.
In May 2014, year on year growth rates of industrial
produc on, manufacturing and mining amounted to
2.8%, 4.4% and 0.9%, respec vely.
In February–May, industries oriented at the con-
sumer demand grew at a faster rate than manufactur-
ing in general. In May, produc on of food products and
tex le and sewing industry rose by 7.2% and 18.3%
year on year, respec vely. Despite the fact that in
May produc on of leather and footwear amounted to
99.3% year on year against the index of 2013, gene-
rally in January–May 2014 the output in that segment
of business ac vi es increased by 3.2% as compared
94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113
GDP
Agriculture
Fishing and fish-farming
Mining
Manufacturing
Utilities (electricity, water and gas)
Building
Retail and wholesale trade
Hotels and restaurants
Transport and communications
Financial sector
Real-estate operations
State governance and military
Education
Healthcare and provision
Provision of other utilities…
Households’ activities
Net taxes on food
2014 2013
Source:The Rosstat
Fig. 1. Indices of the physical volume of the produced GDP and the gross added value by the type
of economic ac vi es in Q1 2013–2014 as % of the respec ve period of the previous year

THE REAL SECTOR OF ECONOMY IN JANUARY–MAY 2014: FACTORS AND TRENDS
15
to the respec ve period of 2013. It can be supposed
that in the above types of business the economic ac-
vity was supported by means of u liza on of the im-
port subs tu on poten al. In the pa ern of commo-
dity resources of the retail trade turnover, in Q1 2014
the share of domes c products amounted to 57.0%,
including food products (35.0%), though in the pat-
tern of import in Q1 2014 the unit weight of the im-
port of consumer goods in the total volume of import
amounted to 38.4% and remained virtually at the level
of the index of 2013.
To apprecia on of prices as a result of deprecia on
of the ruble, a complex of intermediate demand indus-
tries with a high share of export-oriented industries re-
acted by growth in output. If in May 2013 the price
index in manufacturing amounted to 102.4% year on
year, in May 2014 it was equal to 105.9%. In Janu-
ary–May 2014, there was growth in output of petro-
leum (7.2%), the pulp and paper industry (7.7%), the
chemical industry (3.6%) and the iron and steel indus-
try (2.0%). It is to be noted that with a rela vely small
share of the import in the cost of produc on in the
above types of ac vi es, profitability of produc on did
not change much. In the pulp and pare industry and
the iron and steel industry, the profitability of the sold
goods increased as compared to the same period of
2013, while in produc on of petroleum and the che-
mical industry, decreased by 1 p.p.
Growth in the output of intermediary demand
goods resulted in structural changes in import: in Q1
2014 the unit weight of intermediary goods in the total
volume of import fell to 37.4% against the 38.2% in
2013.
There was a drama c reac on to changes in the
pricing situa on on the part of investment complex
industries due to apprecia on of prices on imported
products of intermediate and ul mate consump on.
In May 2014, the index of produc on of machinery
and equipment amounted to 94.7% year on year, while
that of produc on of electric, electronic and op cal
equipment, to 97.1% as compared to May 2013. The
situa on in the above areas is made even worse due
to a drop of 6.0% in the volume of import of high-tech
products, including electronic and communica on
equipment (15.7%) and office computer equipment
(11.7%) as compared to Q1 2013.
In May 2014, transport equipment manufactur-
ing increased by 18.3% year on year which can be ex-
plained by growth of 31.5% in manufacturing of ships,
aircra , spacecra and other transporta on vehicles,
while automo ve equipment produc on fell by 6.0%.
The military-industrial complex and the nuclear power
industry produce goods which are tradi onally in high
demand on the global market, however, in Q1 2014 the
export of goods of the aerospace industry amounted
to just over 50% of the index of the previous year with
dynamic growth in import which exceeded by 100%
the volume of the domes c produc on.
The main component which underpins economic
growth is households’ consump on. In May 2014, the
real disposable cash income increased by 5.8% year on
year with a drop of 0.3% a year before. Growth rates of
real wages and salaries increased from 104.7% in May
2013 to 105.0% in May 2014. In January–April, the real
amount of the granted pensions rose by 2.5% as com-
pared to the respec ve period of 2013.
However, the dynamics of consumer demand is
characterized by gradual slowdown. In May 2014, the
growth rates of the retail trade volume and the volume
of paid services to households amounted to 2.1% year
on year and 0.6%, respec vely (3.4% and 0.9%, respec-
vely, a year ago). Slowdown of retail trade growth
rates is jus fied by a year on year decrease of 0.3% in
demand on food in May with a 4.0% increase in growth
rates of the market of nonfood products. It can be jus -
fiedbygrowthinpricesonfoodproductsinMayby6.9%
from the beginning of the year (4.7% in December–May
2013) with moderate growth in prices on nonfood prod-
ucts and services: 2.5% and 2.9%, respec vely. In May
2014, the consumer price index amounted to 107.6%
Table 1
EXPORT AND IMPORT OF HIGH TECH PRODUCTS IN Q1 2014
Export Import
Million
USD
% of the respec ve period
of the previous year
Million
USD
High-tech products 2950 59.8 8468 94.0
including:
aerospace industry goods
1107 53.9 2001 155.2
Office computer equipment 124 182.4 1320 88.3
Electronic and telecommunica ons
equipment
215 94.3 2428 84.7
pharmaceu cals 52.2 96.1 697 74.6
Scien fic instruments 301 152.2 883 69.0
Source: The Rosstat.

16
year on year and exceeded by 0.2 p.p. the index of the
previous year. In January–May 2014, weak economic dy-
namics was mainly jus fied by structural factors. It is to
be noted that a long-term reduc on of the volumes of
investments in capital assets is the main factor behind
slowdown of growth in the short-term prospect. In May
2014, investments in capital assets decreased by 2.6%
as compared to the respec ve period of 2013. In 2014,
a drop in investments in capital assets was jus fied by a
higher economic uncertainty, worsening of the financial
posi on of real sector companies, tougher condi ons of
bank lending and higher capital flight from the country.
In May 2014, the rate of unemployment kept fall-
ing to 4.9% with the average index of 5.4% in January–
April (on the basis of the ILO methods). The labor mar-
ket indicators point to growth in labor shortages: both
the number of the officially registered unemployed
per one vacant job and the share of the unemployed
receiving unemployment benefits decreased. The low
rate of unemployment in a situa on of slowdown of
economic growth rates is the result of low labor effi-
ciency.
With the exis ng level and efficiency of u liza on
of the main factors of produc on, the Ministry of Eco-
nomic Development of the Russian Federa on and the
world’s leading agencies expect slowdown of 100.4%
to 100.6% of Russian GDP growth rates in Q2 2014
as compared to the respec ve period of the previous
year with the spread of annual es mates in the range
of 99.0–101.0%.

RUSSIAN INDUSTRY IN MAY 2014
17
S.Tsukhlo
The Industrial Op mism Index1
The aggregate index of industrial op mism showed
improvement in sen ments of the Russian industry
(Fig. 1); it is based on three components out of four
ones2
.
Demand on Industrial Products
In May, the ini al data on demand did not show a
tradi onal holiday decrease in sales as compared to
April (as it was last year). As a result, clearing of the
seasonal factor showed improvement in the dynamics
of demand, but le the balance in the nega ve zone
(Fig. 2). However, even that situa on started to suit
a slightly larger share of enterprises than before: the
share of “normal” answers in evalua on of the de-
mand rose to 50% and became equal to that of “below
the norm” answers.
As a year ago, the forecasts of the demand in-
creased by 7 points, however, with the seasonal factor
cleared the total balance failed to enter the posi ve
zone. However, minimum changes in the index jus fy
a conclusion about its stability around the zero level,
rather than any serious fluctua ons from the begin-
ning of the year.
1 Surveys of managers of industrial enterprises are carried out
by the Gaidar Ins tute in accordance with the European harmo-
nized methods on a monthly basis from September 1992 and cover
the en re territory of the Russian Federa on. The size of the panel
includes about 1,100 enterprises with workforce exceeding 15% of
workers employed in industry. The panel is shi ed towards large
enterprises by each sub-industry. The return of queries amounts
to 65–70%.
2 The index is based on the arithme c mean value of balan-
ces (different answers) of four ques ons from the IEP’s monthly
survey ques onnaire: 1. Actual changes in demand, balance =
%growth - %decrease; 2. Evalua on of demand, the difference of
evalua ons = % above the norm + % norm - % below the norm;
3. Evalua on of stocks of finished products, balance = % above the
norm - % below the norm, the opposite sign; 4. Plans to change
output; balance = %growth - %decrease. The index may vary from
-100 points to +100 points. Posi ve values of the index mean that
posi ve evalua ons prevail. Nega ve values of the index mean
that nega ve evalua ons prevail. A decrease in the index value
means worsening of the situa on, while growth in the index value,
improvement in the situa on.
Stocks of Finished Products
The balance of stocks of finished products rose
(that is, got worse) by 5 points in May, but did not go
beyond the band within which it stayed from July 2013
(Fig. 3). So, for 11 months running, industry demon-
strated fairly successful management of stocks of fin-
ished products even in a situa on of growing uncer-
tainty and higher geopoli cal risks. It is to be noted
According to business surveys of the Gaidar Ins tute1
carried out in May, the situa on in the Russian industry
changed for the be er. Forecasts of changes in demand, output and employment demonstrate posi ve dynamics.
The stocks of finished products are successfully controlled by enterprises. The rate of employment keeps decreas-
ing, but it is not excluded that addi onal workforce may be required.
THE IEP INDUSTRIAL OPTIMISM INDEX. 2005-2014
Fig. 1
SOLVENT DEMAND CHANGES CLEARED OF A SEASONAL
FACTOR (BALANCE=%GROWTH-%DECREASE)
EXPECTED
ACTUAL
Fig. 2

18
that the share of the “normal” answers amounts at
present to 69% and is close to the historic maximum
level.
The Output
In May 2014, the output did not undergo downward
changes which were typical of that month. The ini al
data of the survey showed that the output remained
at the level of April, while the data cleared of the sea-
sonal factor demonstrated growth whose rate was un-
typical of the past two years (Fig. 4). It seems the in-
dustry does not experience at all either the recession
which was predicted, or sanc ons on the part of Rus-
sia’s Western “partners”. The latest developments on
Russia’ South-Western border sooner contributed to
growth in output of the Russian industry due to both
exit by Ukrainian compe tors (for objec ve reasons)
from Russian sales markets and markets of primary
materials and subjec ve growth in military-poli cal
patrio sm in new geopoli cal condi ons. Probably, it
is an excessive one as pointed to by a small worsening
of es mates of stocks of finished products.
In industry forecasts, growth in op mism was regis-
tered as well: growth of 12 points and 9 points as re-
gards the ini al data and that cleared of the seasonal
factor, respec vely. As a result, in March–April all the
losses of that index were recovered and the balance of
output plans returned to the level which was typical
of that of expecta ons of the previous months, that
is, a moderate one by standards of the pre-crisis years
and first post-crisis years, but quite a good one with
the prospect of the predicted recession taken into ac-
count.
Prices of Enterprises
In May, the industry returned to intense growth in
prices it demonstrated in Q1 2014. So, a surge in their
growth rates in April due to joint efforts by the Rus-
sian Central Bank and Russia’ Western partners was
stopped by reverse ac ons by one authori es and in-
decisiveness by the other. However, the levels of the
index of the beginning of 2014 and May 2014 exceed
the respec ve values of 2013 and so far no decrease
in that index is observed by the end of H1 as it used to
be before.
A similar situa on is observed with enterprises’
pricing forecasts. In May, they managed to return to
the level of the beginning of the year a er an unusual
surge in March–April (Fig. 5).
Actual Dynamics and Lay-off Plans
In May, the industry demonstrated unexpectedly
preserva on of the former rates of change in the
number of workers. As a rule, in that period the index
BALANCE OF ESTIMATES OF STOCKS OF FINISHED
PRODUCTS (BALANCE=%ABOVE THE NORM - %BELOW
THE NORM
BALANCE
THE SHARE
OF NORMAL ESTIMATES
Fig. 3
EXPECTED
ACTUAL
CHANGES IN OUTPUT VOLUMES CLEARED OF A SEASONAL
FACTOR (BALANCE =%GROWTH-%DECREASE)
Fig. 4
CHANGES IN SELLING PRICES
(BALANCE=%GROWTH-%DECREASE)
EXPECTED
ACTUAL
Fig. 5

19
normally changes for the worse as compared to the
previous months. At present, it remains in the nega-
ve zone which fact points to con nued reduc on of
the number of workers in the Russian industry. Ac-
cording to surveys, that process began in mid-2012
and since then enterprise have never succeeded in
achieving the excess of the number of the employed
over that of laid oﬀ.
Improvement in employment forecasts can be at-
tributed to surprises of May 2014. Those forecasts
rose by several points and entered the posi ve zone,
though judging by the experience of the past few years
they should have been nega ve ones. It seems the in-
dustry is seeking to realize its opera ng plans based
on its output forecasts with employment of addi onal
workforce (Fig. 6).
CHANGES IN EMPLOYMENT
(BALANCE=%GROWTH-%DECREASE)
EXPECTED
ACTUAL
Fig. 6

20
INVESTMENTS IN CAPITAL ASSETS IN JANUARY MAY 2014
O.Izryadnova
In the first five months of 2014, a trend of reduc on
of investment demand prevailed: in May 2014 capital
investments amounted to 97.4% on May 2013, while
in January–May 2014, to 96.2% against the respec ve
period of 2013.
In 2014, the situa on in the investment sector of
the economy is determined by a slowdown of busi-
ness ac vi es as early as H2 2012. Throughout 2013,
low investment ac vi es and a lack of the required
reserves in the building industry jus fied a drop in in-
vestments in 2014. In Q1 2014, the share of capital in-
vestments amounted to 11.5% of GDP and was 1.1 p.p.
lower than the level of the respec ve period of 2013,
while the contribu on of the building industry to
GDP decreased to 4.6% against 5.1%. In Q1 2014 and
January–May 2014, capital investments in real terms
amounted to 95.2% and 92.6%, respec vely against
the respec ve periods of 2013. It is to be noted that in
January–May 2013, investment ac vi es were already
in the state of stagna on.
The dynamics of capital investments is diversified
by the economic agent. In Q1 2014, in the segment
of large and mid-sized enterprises a drop of capital in-
In January–May 2014, capital investments in real terms amounted to 96.2% on the respec ve index of the pre-
vious year. In the pa ern of sources of investment funding, the share of own funds and banks’ par cipa on
increased with a reduc on of investment of federal budget funds. In Q1 2014, in the segment of large and mid-
sized enterprises a drop in capital investments stopped and they increased by 1,8% as compared to the respec ve
period of the previous year. In Q1 2014, a posi ve effect on the dynamics of investments by large enterprises was
produced by growth in investments in the primary sector (5.4%), manufacturing (2.6%), oil refining (35.1%) and
transport and communica ons (10.5%).
vestments stopped. If in Q1 2013 investments of large
enterprises amounted to 95% as compared to the in-
dex of the previous year, in Q1 2014 they increased
by 1.8%. However, a 20% decrease in investments by
small enterprises in the beginning of the year inten-
sified a drop in capital investments in the economy
-0,8
5
8,2
13,6
16,5
10,5
5,3 2,1
0,1
-1,2
-0,3
0,4
-4,8-5
0
5
10
15
20
I II III IV I II III IV I II III IV I
2011 2012 2013 2014
The volume of jobs in building Investments in capital assets
GDP
Source: the Rosstat.
Fig. 1. Dynamics of capital investments in the 2011–2014
period as % of the respec ve quarter of the previous year
Table 1
THE VOLUME AND PATTERN OF CAPITAL INVESTMENTS BY THE TYPE OF CAPITAL ASSETS IN Q1 2011 2014
WITHOUT SMALL BUSINESS AGENTS AND PARAMETERS OF INFORMAL ACTIVITIES
Billion Rb % of the result
2011 2012 2013 2014 2011 2012 2013 2014
Investments in capital assets 956.8 1211.0 1310.2 1429.7 100 100 100 100
including:
housing 47.6 48.4 63.9 81.7 5.0 4.0 4.9 5.7
buildings (except for residen-
al ones) and construc ons
499.2 604.6 609.4 710.6 52.2 49.9 46.5 49.7
machines, equipment and
means of transporta on
326.1 441.1 506.5 481.7 34.1 36.4 38.6 33.7
Including: purchasing of import machines,
equipment and means of transporta on
63.6 71.4 89.9 n.a 6.6 5.9 6.9 n.a
other 83.9 116.9 130.4 155.7 8.7 9.7 10.0 10.9
Source: Rosstat.

INVESTMENTS IN CAPITAL ASSETS IN JANUARY–MAY 2014
21
general. It is to be reminded that in Q1 2013 growth
in investments in the segment of small enterprises
amounted to 7.1% and contributed to stabiliza on of
the situa on in the investment and building complex
at the level of the indices of Q1 2012.
In Q1 2014, as in the previous two years in the pat-
tern of capital investments growth in the volumes and
the share of investments in building of housing was
registered.
The posi ve dynamics of commissioning of housing
was registered from H2 2012 which situa on was jus -
fied by some improvements in financing. In Q1 2014,
en es of all the forms of incorpora on built 231,100
apartments with the total floorspace of 13.6m sq. me-
ters which is 31% more than in the respec ve period
of the previous year. Individual developers built 6.4m
sq. meters of housing or 46.7% of the total floorspace
of housing commissioned in Q1 2014.
In the pa ern of sources of funding of investments
in building of housing in the 2011–2014 period, the
volume and the share of households’ funds rose in the
equity construc on of housing with a reduc on of the
share of legal en es’ funds. In Q1 2014, the funds re-
ceived for equity construc on of housing increased by
Rb 10.6bn, including households’ funds (by Rb 9.7bn)
as compared to Q1 2013. Growth in households’ in-
vestment ac vi es was underpinned by expansion
of lending. On the basis of the results of Q1 2014,
Rb 333.0bn worth of mortgage loans was extended,
that is, a 48% increase on the index of 2013.
In Q1 2014, the structural specifics was growth in
quan ta ve parameters of investments in building of
non-residen al facili es and premises with a reduc on
of investment expenditures on machinery and means
of transporta on. The share of investments in build-
ing of industrial and social projects rose by 3.2 p.p. as
compared to the respec ve period of 2013. The total
building volume of non-residen al facili es commis-
sioned in Q1 2014 amounted to 28.0m sq. meters and
increased by 27% as compared to Q1 2013, including
industrial projects (126%), educa onal buildings (45%)
and healthcare buildings (69%). According to the sta-
s cal data of commissioning of social and cultural
projects, indices of Q1 2014 are s ll lower than those
of the previous year.
In Q1 2014, the share of machinery and equipment
in capital investments decreased by 4.9 p.p. as com-
pared to the respec ve period of 2013 which situa on
is probably related to insufficient volume of reserves
for installa on and incomplete construc on. The situ-
a on with provision of machinery and equipment for
fulfillment of building and installa on jobs is made
complicated due to a drop in the output of domes c
equipment. On the basis of the results of Q1 2014,
Table 2
INVESTMENTS IN CAPITAL ASSETS WITHOUT SMALL BUSINESS AGENTS AND THE VOLUME OF INVESTMENTS
WHICH IS NOT DISCERNIBLE TO DIRECT STATISTICAL METHODS BY THE TYPE OF ECONOMIC ACTIVITIES
IN Q1 OF THE 2011 2014 PERIOD
% of the result
2011 2012 2013 2014 2011 2012 2013 2014
Total 101.9 116.8 95.0 101.8 100 100 100 200
Agriculture, hun ng and forestry 107.8 116.7 102.5 98.8 3.0 3.2 3.3 3.1
Fishing and fish-farming 194.4 161.4 46.4 82.5 0.1 0.1 0.1 0.1
Industry 102.0 129.0 94.8 103.3 49.6 53.8 53.8 53.2
Mining 107.5 132.2 88.6 105.4 22.1 25.0 24.1 24.6
Manufacturing 104.7 128.9 108.0 102.6 17.9 18.5 20.2 19.6
U li es (electricity, water and gas) 87.2 121.9 86.1 99.7 9.6 10.3 9.5 9.0
Building 96.7 134.5 106.5 153.2 2.3 2.6 2.6 4.2
Wholesale and retail trade 129.7 91.8 119.1 129.4 2.7 2.2 3.0 3.5
Hotels and restaurants 94.7 40.3 135.4 64.1 0.5 0.2 0.7 0.4
Transport and communica ons 113.0 106.2 80.9 110.5 26.3 24.0 19.5 19.8
Railway transport 87.8 82.1 94.0 90.0 5.3 3.7 3.3 2.8
Pipeline transporta on 125.8 107.3 60.8 113.7 11.1 10.4 6.6 6.1
Communica ons 107.9 129.0 104.1 87.3 3.0 3.2 3.2 2.8
Financial sector 129.6 140.6 99.8 108.5 1.3 1.4 1.6 1.3
Real-estate opera ons 87.5 97.9 115.4 108.5 7.4 6.3 9.2 9.6
State governance 85.7 121.3 80.0 121.6 0.8 0.8 0.7 0.9
Educa on 124.3 88.7 116.1 89.7 1.5 1.2 1.2 1.0
Healthcare and social services 115.8 125.7 102.9 66.4 1.6 1.6 1.6 1.0
Source: Rosstat.

22
the output of machinery and equipment amounted to
85.5% of the respec ve index of the previous year. So
far, that situa on is overcome by the prevailing trend
of growth in the share of import of investment goods
in the total volume of the Russian import to 24.5% in
January–March 2014 against 23.5% a year earlier.
On the basis of Q1 2014, the volume of investments
in capital assets (without small business agents and
volumes of investments which are not discernible to
direct sta s cal methods) amounted to Rb 1,429.7bn.
In the pa ern of capital investments by the type of
economic ac vi es in the 2013–2014 period, substan-
al changes took place.
In Q1 2014, investment growth recovered in min-
ing, growth rates of capital investments decreased
in manufacturing and investment demand in u li es
(electricity, water and gas) kept falling. As a result, on
the basis of the results of Q1 2014 growth in invest-
ments in industry as a whole amounted to 3.3% as
compared to the index of Q1 2013, however, that situ-
a on did not permit to eliminate the nega ve effect of
a drop in investments in industry in Q1 2013. In manu-
facturing, ac ve growth in capital investments was ob-
served in produc on of petroleum (135.1% in Q1 2014
against Q1 2013), transport equipment manufacturing
(128.8%) and the tex le sewing industry (200.0%).
A nega ve contribu on to the dynamics of invest-
ments in manufacturing was made by such indus-
tries as the woodworking industry and produc on
of wood products (72.82% in Q1 2014 against Q1
2013), the chemical industry (84.7%), the pulp and
paper industry (51.9%), produc on of rubber and
plas c goods (59.0%) and produc on of building ma-
terials (77.8%).
Early in 2014, expansion of investment demand in
the transport industry was related to growth in the
volume of jobs related to development of pipeline
transporta on.
In funding of investments, u liza on of own funds
increased. In Q1 2014, the share of investments made
by means of en es’ own funds amounted to 54.3%
and exceeded by 1.3 p.p. the index of Q1 2013. In Q1
2014, growth in the share of investments financed out
of en es’ profit was related to a 0.3 p.p. growth in
profitability in the economy in general to 8.7% as com-
pared to the respec ve period of 2013.
Table 3
THE VOLUME AND PATTERN OF INVESTMENTS IN CAPITAL ASSETS IN Q1 OF THE 2011 2014 PERIOD
WITHOUT SMALL BUSINESS AGENTS AND PARAMETERS OF INFORMAL ACTIVITIES
Billion Rb % of the result
2011 2012 2013 2014 2011 2012 2013 2014
Investments in capital assets 956.8 1211.0 1310.2 1429.7 100 100 100 100
Including by the source of funding:
own funds
464.8 613.3 693.9 776.5 48.6 50.6 53.0 54.3
A racted funds 474.7 571.8 583.8 653.2 49.6 47.2 44.6 45.7
including:
bank loans
66.5 97.6 130.3 140.5 7.0 8.1 9.9 9.8
including
foreign banks’ loans
17.4 23.2 15.9 18.2 1.8 1.9 1.2 1.3
Russian banks’ loans 49.1 74.4 114.4 122.3 5.2 9.2 8.7 8.5
Other en es’ borrowed funds 47.0 64.4 94 87.5 4.9 5.3 7.2 6.1
Budget funds 127.6 133.4 148.4 137.5 13.3 11.0 11.3 9.6
including:
federal budget funds
51.9 57.0 70.4 58.6 5.4 4.7 5.4 4.1
Funds of budgets of cons tuent en -
es of the Russian Federa on
69.0 67.8 67.6 67.2 7.2 5.6 5.2 4.7
Extra-budgetary funds 3.4 2.9 6.1 2.7 0.3 9.2 0.5 0.2
other 230.2 273.5 204.9 232.5 24.1 22.6 15.6 16.3
including:
funds of superior bodies
200.7 237.4 135.8 168.5 21.0 19.6 10.4 11.8
Funds received from corporate bond issues n.a n.a. 0.4 4.0 - - 0.03 0.3
Funds from equity issuing 10 13.6 15.4 41.5 1.0 1.1 1.2 2.9
Funds received for equity construc on
of housing (en es and households)
17.3 25.9 32.5 43.1 1.8 2.1 2.5 3.0
Including households’ funds 10.6 16.6 25.4 35.1 1.1 1.4 1.9 2.5
Of the total volume of investments in
capital assets – investments from abroad
36.4 40.3 36.6 9.4 3.8 3.3 2.8 0.7
Source: The Rosstat.

INVESTMENTS IN CAPITAL ASSETS IN JANUARY–MAY 2014
23
In Q1 2014, the share of bank loans in the pat-
tern of sources of funding amounted to 9.8% and was
0.1 p.p. lower than the index of the respec ve period
of the previous year. In the past three years, changes
in the pa ern of bank lending have been determined
by growth in the volume and share of Russian banks’
loans which replace foreign banks’ loans. As com-
pared to Q1 2013, Russian banks’ loans increased by
Rb 7.9bn, while those of foreign banks, by Rb 1.3bn.
In Q1 2014, at the level of par cipa on of banks in
financing of investment programs the prevailing trend
of capital flight had a nega ve impact on the situa on.
According to the preliminary es mates of the Central
Bank of Russia, in January–March 2014 the net capital
ou low from the private sector amounted to $50.8bn,
including $18.9bn from the banking sector. In addi on
to the above, in Q1 2014 the volume of foreign invest-
ments in capital assets decreased; their share in the
total volume of investments in the Russian economy
fell to 0.7% against 2.8% a year before.
In the pa ern of the funds a racted for financing
capital investments, a change in the role of budget
funds was observed. In Q1 2014, budget funds per-
mi ed to finance Rb 137.5bn worth of investments
in capital assets (9.6% of the total volume of invest-
ments in the economy). As compared to Q1 2013, the
scale of funding of investments by means of federal
budget funds and budget funds of cons tuent en es
of the Russian Federa on decreased by Rb 11.8bn and
Rb 0.4bn, respec vely, with growth of Rb 5.6bn in par-
cipa on of local budget funds.
In 2014, the Federal Target Investment Program
(FTIP) provides for alloca on of federal budget funds
in the amount of Rb 834.6bn. It is planned to spend
the above funds on development of the industrial in-
frastructure, including transport, pipeline transporta-
on and informa on and communica ons infrastruc-
ture (Rb 301.2bn), crea on of condi ons to speed up
social development of the country, including health-
care, educa on, culture, housing and demographic
situa on (Rb 166.4bn) and implementa on of mea-
sures which facilitate a switchover of the economy to
the innova on way of development, establishment of
the na onal innova on system and development of
science and high technologies (Rb 79.7bn).
Budget investments and subsidies on financing of
property which are in the ownership of the Russian
Federa on and budget investments to open-end joint-
stock companies amount to Rb 739.1bn. Subsidies to
units which are in the regional (municipal) ownership
are equal to Rb 95.5bn.
Table 4
THE VOLUMES OF FUNDING OF THE FEDERAL TARGET
INVESTMENT PROGRAM IN 2014, BILLION RB
FTIP
Including
Program
por on
Non-program
por on
Total funding 834.6 523.6 311.0
including
State property
and property of
open-end joint-
stock companies
739.1 434.7 304.4
regional (munici-
pal) property
95.5 88.9 6.6
Source: Ministry of Economic Development of the Russian
Federa on
In accordance with the FTIP approved by the Mi-
nistry of Economic Development of the Russian Fede-
ra on for the year 2014 (as updated as May 1, 2014),
Rb 541.2bn was allocated, including Rb 525.9bn out
of the federal budget on building of 2112 capital de-
velopment projects, purchasing of real property units
and implementa on of measures (large investment
projects), including 495 projects in respect of which
only design and survey jobs were planned. Out of
742 projects which are expected to be commissioned
in 2014 three projects were put into opera on: two
projects to full capacity and one project to a par al
capacity.
According to the data of the Rosstat, in January–
April 2014 Rb 152.9bn of federal funds was used to
finance FTIP projects (without taking into account
special jobs included in the state defense order), that
is, 29.1% of the envisaged limit set for the year. As of
May 1, 2014, 625 projects were financed in full.

24
FOREIGN TRADE IN APRIL 2014
N.Volovik
In April 2014, the foreign trade turnover calculated
on the basis of the methods of the balance of payments
amounted to $75.1bn and exceeded by 0.5% the index
of April 2013. Growth took place because export deliv-
eries increased. In April 2014, $47.5bn worth of goods
was exported from the country which figure was 6.7%
higher than the respec ve index of 2013. As compared
to April 2013, import decreased by 8.7% and amount-
ed to $27.6bn. As a result, the foreign trade surplus
increased and amounted to $19.8bn which was 39%
higher than the index of April 2013.
In April 2014, in the global commodi es market dif-
ferently direc onal dynamics of prices was observed.
As compared to April 2013 prices on coal, natural gas,
iron ore, aluminum and copper decreased, while those
on oil, nickel, zinc and lead appreciated.
In April 2014, prices on Brent oil appreciated by
4.8% as compared to April 2013. On April 2, hav-
ing a ained the minimum value of $103.34 a barrel
within a month, a er April 8 Brent oil prices did not
go down below $106 a barrel. In May 2014, the Brent
oil prices fluctuated within the range of $108-$111 a
barrel. In mid-June, prices started to grow due to ten-
sions caused by a acks by Sunni fighters in Iraq which
is rated the second among the OPEC countries as re-
gards produc on of oil. On June 23, the nine-month
maximum of oil prices – $115 a barrel – was achieved.
In April 2014, differently directed dynamics of export and import was observed and, as a result, the trade balance
surplus increased. In the foreign trade turnover of the Russian Federa on, the share of CIS countries has kept
decreasing. G-20 countries con nue to apply protec onist measures on their domes c markets.
In April 2014, Urals oil prices amounted to $106.6
a barrel which is 5.4% higher than in April 2013. With-
in four months of 2014, Ural oil prices decreased by
1.6% as compared to the respec ve period of 2013 to
$106.8 a barrel.
In May 2014, the average Urals oil price amounted
to $107.7 a barrel. In May 2013, the price was at the
level of $102.27 a barrel.
According to the data of the Ministry of Economic
Development of the Russian Federa on, in the period
from May 15 ll June 14, 2014 the average price of
crude Urals oil was equal to $785.9 a ton ($107.66 a
barrel). As a result, from July 1, 2014 the export oil du-
ty in the Russian Federa on will slightly increase and
amount to $385.2 a ton. From July 1, the reduced rate
of duty on oil of the Eastern Siberia, Caspian deposits
and Prirazlomnoe deposit will amount to $189.4 a ton
($189.2 from June 1). The duty on high-viscosity oil will
not change and be at the level of $38.5 a ton. In July,
the duty on light and dark oil products which was set
in the amount of 66% of the oil duty will amount to
$254.2 a ton (from June 1 it was set at $254.1 a ton).
On the basis of the ra o of 0.9, the duty on export of
petrol will increase to $346.6 a ton from $346.5 a ton.
The duty on condensed gas will increase to $89.6 a ton
from $86 a ton. From July 1, the duty on diesel fuel
with the ra o of 0.65 of the oil duty will amount to
0
10
20
30
40
50
60
jan
may
sep
jan
may
sep
jan
may
sep
jan
may
sep
jan
may
sep
jan
may
sep
jan
may
sep
jan
may
sep
jan
may
sep
jan
may
sep
jan
may
sep
jan
may
sep
jan
may
sep
jan
may
sep
jan
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Balance Export Import
Source: The Central Bank of the Russian Federa on.
Fig. 1. The main indices of the Russian foreign trade (billion Rb)

FOREIGN TRADE IN APRIL 2014
25
$250.3 a ton as compared to $250.2 a ton which is in
effect from June 1.
In the past two months, the situa on on the global
market of nonferrous metals did not change much. An
excep on is only nickel which prices appreciated in
March and April due to both limita on of its supplies
on the global market and the fact that earlier it used
to depreciate faster as compared to other industrial
metals.
According to the data of the London Metal Ex-
change, in April 2014 as compared to March 2014 there
was growth in prices on nickel (11.0%) and aluminum
(6.2%), while copper prices remained at the level of
the previous month. As compared to April 2013, there
was a decrease in prices on aluminum (2.5%) and cop-
per (7.4%) while nickel prices appreciated by 10.9%. In
January–April 2014, as compared to the respec ve pe-
riod of 2013 aluminum, copper and nickel were traded
11.8%, 10.3% and 9.3% lower, respec vely.
A er in March 2014 the average value of the FAO
food price index amounted to the maximum level –
213 points – in the past ten months, in April it fell to
210.3 points. The decrease mainly took place due to a
sudden drop in prices on dairy products and some de-
precia on of prices on sugar and vegetable oils. Prices
on grain and meat products slightly increased.
In April 2014, there was a drama c deprecia on of
prices on dairy products on the global market. In April,
the average value of the FAO index of dairy food price
amounted to 251.5 points having fallen by 17 points
within a month. Prices depreciated on virtually all the
types of dairy products, primarily, bu er and dry milk.
The world’s main exporter of dry fat-free milk is the
US where at present the milk yield is at the season-
high level. According to the data of the USDA (United
States Department of Agriculture), in March 2014 pro-
duc on of milk in the US grew by 0.9% as compared
to the respec ve period of the previous year to 8.09m
tons. From the beginning of the year, 23.2m tons of
milk was produced which was 1% higher than in the
same period of the previous year. It is to be noted that
global dairy prices are also under the pressure of the
EU countries which keep producing a record-high milk
yield.
According to the data of the Central Bank of Russia,
in January–April 2014 the Russian foreign trade turn-
over amounted to $269.8bn (which is 2.5% less than
in January–April 2013), including $170.3bn worth of
export (growth of 0.5%) and $99.5bn worth of import
(a decrease of 7.1%). Differently directed dynamics of
export and import resulted in growth in the trade bal-
ance surplus to $70.8bn which is 13.2% more than in
january–april 2013.
Within four months of 2014, in the export pa ern
the share of food products and agricultural primary
products rose to 3.4% against 2.5% in January–April
2013. The monetary volume of the export of that
commodity group increased by 36.3% due to a 260%
growth in grain deliveries abroad.
Due to growth in physical volumes, the export of
wood and pulp and paper products increased: as
compared to January–April 2013 there was growth of
14.4%.
The export of fuel and energy commodi es rose by
0.3%. According to the data of the Federal Customs
Service, in January–April 2014 73.7m tons of oil was
exported from the country which value is 5.9% lower
than in the same period of 2013. It is to be noted that
65.8m tons of oil was exported to the far abroad coun-
tries (95.9% against the respec ve period of 2013) and
7.9m tons of oil, to the CIS states (81.3%).
In January–April 2014, the export of gas amounted
to 70.4bn cubic meters which value is 6.5% more than
in January–April 2013. It is to be noted that supplies
increased both to far abroad countries (9.5%) and the
CIS states (0.5%).
Within the first four months of 2014, as regards
other commodity groups of the expanded nomencla-
ture there was a drop in export as compared to the
respec ve period of 2013. Export of chemical products
Table 1
MONTHLY AVERAGE GLOBAL PRICES IN APRIL OF THE RESPECTIVE YEAR
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Oil (Brent),
USD/a barrel
24.79 33.5 50.6 68 68.32 108.26 50.85 84.98 123.07 120.46 102.9 104.8
Natural gas*,
USD/1 m BTU
4.03 3.92 5.86 8.24 8.00 12.19 8.51 7.52 10.36 11.42 12.88 10.73
Copper,
USD/ a ton
1598.5 2950 3395 6370 7766.5 8684.9 4406.6 7745.1 9483.3 8289.5 7234.3 6673.6
Aluminum,
USD/a ton
1332.8 1734 1894 2620 2814.8 2959.3 1420.9 2316.7 2662.6 2049.7 1861.7 1810.7
Nickel,
USD/ a ton
7915.3 12872 16142 17935 50267 28763 11166 26031 26329 17939.8 15673 17373
* The market of Europe, average contract price, Franco-border.
Source: The World Bank.

26
fell by 6.5% mainly due to a drop in contract prices on
fer lizers. The export of metals and fabricated metals
fell by 6.8% due to a drop both in physical volumes
and prices on the global market. A record drop was
registered with the machinery and transport vehicles
group: as compared to January–April 2013 in January–
April 2014 there was a decrease of 14.8% in the export
of products of that group.
As regards import, there was a decrease with all the
commodity groups of the expanded nomenclature:
the import of food and agricultural primary products
(a decrease of 1.4%), chemical products (8%), tex le
and footwear (8.6%) and machinery and transport ve-
hicles (7.2%). The most drama c drop in the import
took place in the metals and fabricated metals group
(17%).
Russia’s trade volume with the CIS states keeps fall-
ing. Within the first four months of 2014, the Russian
export and import to those countries fell by 1.6% and
20.6%, respec vely. The share of the CIS states in the
foreign trade volume of the Russian Federa on fell
from 14.4% in January–April 2013 to 13.5% in Janu-
ary–April 2014.
Russia’s volume of trade with member-states of
the Customs Union fell as well: during the first four
months of 2014, it amounted to $16.5bn which was
14.3% lower as compared to the respec ve period of
2013. The share of member-states of the Customs Uni-
on in the foreign trade volume of the Russian Federa-
on fell from 7.1% to 6.3%.
On June 16, 2014, a report by the UNCTAD, the
OECD and the WTO on trade and investment measures
taken by G-20 countries in the period from Novem-
ber 2013 ll May 2014 was published1
. In the above
period, G-20 countries introduced 112 protec onist
trade measures which had an effect on 0.3% of im-
1 h p://www.wto.org/english/news_e/news14_e/g20_wto_re-
port_jun14_e.pdf
port of those countries (0.2% оf the aggregate index of
the global import of goods). Pharmaceu cals, electric
machinery, ferrous metals and ground transporta on
means were the worst hit due to the above restric ve
measures.
Most trade restric ons introduced by G-20 coun-
tries from the beginning of the world economic crisis
are s ll in force. So, only 251 protec onist measures
were canceled out of 1185 ones introduced from Oc-
tober 2008. Star ng from 2008, protec onist meas-
ures affected about 4.1% of the global trade.
In May 2014, the report of the Eurasian Economic
Commission (EEC) on protec onist measures applied
to goods from the Customs Union of Russia, Belarus
and Kazakhstan was published2
.
On the basis of the results of the foreign trade mo-
nitoring of the EEC in Q1 2014, 104 measures limi ng
the access to markets for goods from the member-
states of the Customs Union were iden fied. Most
trade barriers were an dumping measures: 50 mea-
sures, including 5 an dumping inves ga ons are car-
ried out at present. Also applied are four discrimina-
ng excises, two bans on import, six quan ta ve
limita ons, including two tariff quotas, nine other
non-tariff barriers, one limita on of the import by the
nomenclature, two charges, nine special protec on-
ist measures, including 5 inves ga ons which are un-
derway, five sanitary and phytosanitary measures and
nine technical barriers, including two threats of such
barriers being introduced.
In respect of goods from the member-states of the
Customs Union, the European Union and the US ap-
ply 20 and 13 protec onist measures, respec vely. CIS
states apply 35 protec onist measures with Ukraine
and Uzbekistan accoun ng for most of them (16 and
8 protec onist measures, respec vely).
2 h p://www.eurasiancommission.org/ru/act/trade/dotp/Site-
Assets/dostup/doklad_2014.pdf

STATE BUDGET IN JANUARY–MAY 2014
27
STATE BUDGET IN JANUARY MAY 2014
T.Tischenko
Analysis of the basic execu on parameters
of the federal budget in January to May 20141
In the period of January to May 2014 federal budget
revenues amounted to Rb 5881.8bn or 21.2% of GDP,
a growth of 1.2 p.p. of GDP rela ve to the correspond-
ing period of the previous year (Table 1). Oil and gas re-
venues increased to 11.4% of GDP or by 1.2 p.p. of GDP
rela ve to the first five months in 2013, while by the end
of the first five months in 2014 revenues (other than oil
and gas revenues) remained unchanged as percentage
of GDP (9.8% of GDP) compared to the corresponding
period of the previous year.
Budget expenditures in the period of January to
May 2014 amounted to Rb 5486.8bn (19.8% of GDP),
gaining 0.3 p.p. of GDP over the corresponding period
of the previous year. By the end of the first five months
in 2014 the federal budget ran a surplus of 1.4% of
GDP, being 0.9 p.p. of GDP higher than the balance of
execu on of the federal budget in the period of Janu-
ary to May 2013. However, this took place when the
volume of oil and gas deficit increased 0.3 p.p. of GDP
(10.0% of GDP ) against the level observed in the cor-
responding period of the previous year.
During the first five months of the current year
federal budget revenues from profit tax increased
Rb 27.6bn or 0.1 p.p. of GDP compared to the corre-
1 The Dra Law No. 532291-6 ‘On the Amendments to the Fed-
eral Law ‘On the Federal Budget of 2014 and the Planning Period
of 2015 and 2016’ was submi ed to the State Duma on 27.05.14.
sponding period in 2013 (Table 2), through a growth
of revenues:
• by Rb 10.3bn on the corporate profit tax cred-
ited to the federal budget at a base rate;
• by Rb 11.3bn on the profit tax in execu ng pro-
duc on sharing agreements2;
• by Rb 1.9bn and Rb 1.8bn on income received
as dividends by foreign organiza ons from Rus-
sian organiza ons and on income received as
dividends by foreign organiza ons from Russian
organiza ons respec vely.
“Internal” VAT revenues increased 0.4 p.p. of GDP
in the period of January to May 2014 rela ve to the
first five months of the previous year. “Import” VAT
revenues saw a reduc on of 0.1 p.p. of GDP during the
same period compared to the corresponding period in
2013. During the first five months of the current year
federal budget revenues from “internal” excises as per-
centage of GDP remained at the level observed in the
period of January to May 2013 (0.7% of GDP ) while
those from “import” excises saw a small increase of
0.01 p.p. of GDP to 0.1% of GDP .
2 Profit tax on organiza ons in execu ng produc on sharing
agreements which were concluded prior to the effec ve date of
the Federal Law ‘On Produc on Sharing Agreements’ and made no
provision for special taxa on rates for credi ng the foregoing tax
to the federal budget and the budget of the cons tuent territories
of the Russian Federa on in accordance to 10101020010000110
code.
According to the data provided by the Federal Treasury of Russia, federal budget revenues increased 1.2 p.p. of
GDP in the period of January to May 2014 compared to the corresponding period of the previous year. Consoli-
dated budget revenues of the cons tuent territories of the Russian Federa on in January to April 2014 contracted
by 0.2 p.p. of GDP rela ve to the four months in 2013. At the end of the period of January–May of the current
year the federal budget ran a surplus of 1.4% of GDP; in addi on, a posi ve balance was reached as a result of
the execu on of the consolidated budget of the cons tuent territories of the Russian Federa on as 1.6% of GDP.
Late in May 2014 the Government of Russia submi ed to the State Duma a dra law1
providing for the adjust-
ment of the key parameters of the 2014 federal budget. In par cular, the forecast of GDP volume was downgrad-
ed from Rb 73,315bn to Rb 71.493bn (-Rb 1. 822bn) due to the weakening of the investment demand, reduc on in
inventories at enterprises, slowdown in the consumer spending and export. Nevertheless, accelerated growth in
oil and gas revenues whose volume in the federal budget revenues within the first five months of the current year
accounted for 48.2% of the projected annual volumes, allowed the forecast of the federal budget revenues to be
upgraded from Rb 13570.5bn (18.5% of GDP ) to Rb 14238.8bn (19.9% of GDP) (+Rb 668.2bn or 1.4% of GDP). At
the end of the current year oil and gas revenues are expected to amount to Rb 7480.2bn (+Rb 952.1bn or 10.5%
of GDP), and other than oil and gas revenues are projected to see a reduc on of Rb 283.9bn to Rb 6758.6bn (9.5%
of GDP) rela ve to the ini ally forecasted volume. The volume of federal budget expenditures was not revised,
and the federal budget is expected to run a surplus of 0.4% of GDP in 2014.

28
Table 1
RUSSIA’S FEDERAL BUDGET BASIC PARAMETERS IN THE PERIOD OF JANUARY TO MAY IN 2013 AND 2014
January to May 2014 January to May 2013 Devia ons, as
p.p. of GDPbillions of rubles as % of GDP billions of rubles as % of GDP
Revenues, including: 5881.8 21.2 5114.6 20.0 1.2
Oil and gas revenues 3148.7 11.4 2611.4 10.2 1.2
Revenues (other than oil
and gas revenues)
2733.1 9.8 2503.2 9.8 0.0
Expenditures, including: 5486.8 19.8 4985.5 19.5 0.3
interest expense 165.0 0.6 143.0 0.5 0.1
non-interest expense 5321.8 19.2 4842.5 19.0 0.2
Federal budget surplus (deficit) 395.0 1.4 129.1 0.5 0.9
Deficit (other than oil
and gas deficit)
-2753.7 -10.0 -2482.3 -9.7 -0.3
GDP evalua on 27728 25590
Source: Ministry of Finance of Russia, Federal Treasury of the Russian Federa on, Gaidar Ins tute’s.
Table 2
DYNAMICS OF FEDERAL BUDGET BASIC TAX REVENUES IN THE PERIOD OF JANUARY TO MAY IN 2013 AND 2014
January to May
2014
January to May
2013
Devia on as
p.p. of GDP
billions of rubles as % of GDP billions of rubles as % of GDP
1. Tax revenues, including: 5420.2 19.5 4682.9 18.3 1.2
corporate profit tax 162.5 0.6 134.9 0.5 0.1
VAT on goods sold on the terri-
tory of the Russian Federa on
901.8 3.2 730.8 2.8 0.4
VAT on goods imported to
the Russian Federa on
667.4 2.4 635.4 2.5 -0.1
excises on goods manufac-
tured on the territory of
the Russian Federa on
200.0 0.7 171.5 0.7 0.0
excises on goods imported
to the Russian Federa on
27.3 0.1 22.4 0.09 0.01
Mineral extrac on tax 1214.5 4.4 1025.3 4.0 0.4
Foreign trade revenues 2246,7 8,1 1962,6 7,7 0,4
Source: Federal Treasury of the Russian Federa on, Gaidar Ins tute’s es mates.
Table 3
FEDERAL BUDGET EXPENDITURES IN THE PERIOD OF JANUARY TO MAY IN 2013 AND 2014
January to May 2014 January to May 2013 Devia on as
p.p. of GDPbillions of rubles as % of GDP billions of rubles as % of GDP
Expenditures, total 5486.8 19.8 4985.5 19.5 0.3
Including
Na onwide Issues 362.8 1.3 306.0 1.2 0.1
Na onal Defense 1343.7 4.8 1006.5 3.9 0.9
Na onal Security and
Law Enforcement
751.3 2.7 693.7 2.7 0.0
Na onal Economy 608.0 2.2 527.7 2.1 0.1
Public U li es Sector 38.5 0.1 24.1 0.09 0.01
Environmental Protec on 16.5 0.06 10.1 0.04 0.02
Educa on 273.7 1.0 285.8 1.1 -0.1
Culture and Cinematography 29.0 0.1 27.7 0.1 0.0
Healthcare 177.6 0.6 207.9 0.8 -0.2
Social Policy 1341.5 4.8 1443.9 5.6 -0.8
Physical Culture and Sports 13.3 0.05 17.4 0.07 -0.02
Mass Media 30.8 0.1 30.9 0.1 0.0
Sovereign Debt Servicing 165.0 0.6 143.0 0.5 0.1
Inter-budget Transfers 335.0 1.2 260.8 1.0 0.2
Source: Federal Treasury of the Russian Federa on, Gaidar Ins tute’s es mates.

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