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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Russia's Large Shadow Economy Makes Economic Forecasting Difficult

Economics / Russia Jan 23, 2010 - 09:55 AM GMT

By: Pravda

Economics

One-fifth of the Russian economy is shadowed, the Russian Statistics Agency (Rosstat) said. The actual volume of the Russian economy is unknown, which makes economic forecasts for the country difficult. The shadow started growing at the end of 2008 when the economic crisis hit Russia. However, there were no massive moves towards the shadow zone in the Russian economy, experts believe.


“The share of the shadow economy started growing since the end of the third quarter of 2008, when the crisis reached Russia and affected the state of affairs on the labor market. I think that one-fifth of the Russian economy is shadowed nowadays,” Alexander Surinov, the head of Rosstat said in an interview with the Rossiiskaya Gazeta newspaper.

The shadow economy is connected with criminal types of business only partially. One could say that these are forms of economic activities that can not be observed with the use available tools. They can be such activities as drug dealing or tutoring, for example.

There are five types of non-observed economy. Criminal economic activities, the first type: the production and realization of banned goods and services.

“To put it in a nutshell, if prostitution is banned in Russia, it means that this is a part of shadow economy. It is not prohibited in Germany, which means that prostitution in Germany is not a part of shadow economy. The same goes for drug and arms trafficking. All countries of the world declare that prohibited productions must be included in GDP estimations, although a few countries do it since there are no reliable measurement tools. Russia declares that too, although we don’t include them,” the official said.

The so-called concealed production is another issue. A manufacturer conceals the volumes of production to evade taxes or regulations of the labor law.

There are also so-called informal activities, Surinov said.

“This implies the establishment of an enterprise which does not and is not supposed to be registered. It could be tutoring, for example,” the official said.

Private-owned farms and everything that families produce for themselves make another problematic area for statistic control.

The fifth area is connected with the weakness of statistical research. “We do not embrace all the enterprises that need to be embraced,” the head of Rosstat said.

Deutsche Bank specialists have recently concluded that shadow economy raises the nations’ resistance to recession: shadow business gives people an opportunity to make their living.

Dr. Friedrich Schneider, University of Linz, Austria, believes that shadow economy is the best way to struggle against economic recession. The professor says that people make money illegally and spend it, instead of taking their earnings to banks. The spending boosts consumer demand and triggers an economic growth.

Sergey Nikolayev
Bigness

Read the original in Russian

Pravda.ru

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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