Vladimir Efimov - We Expect Moscow Economy to Return to Pre-Crisis Levels at Year’s End

- After the restrictions on non-food retail and service business had been lifted in June, the consumer demand showed a quick increase. It's August now, has this trend continued?

- The dynamics of consumer demand recovery turned out to be even higher than we expected. Late June - early July, the revenue of retail trade and services not only just recovered, but entered a growth path. In July, an absolute record was set - almost RUR 30 bn of daily revenue, which is 7% higher than the same period last year. The revenue in the first week of August amounted to about RUR 29.4 bn.

- The consumer demand has increased, but the Moscow budget revenues have fallen significantly, haven’t they?

- If we compare it with our plans, since the beginning of the year we have received about RUR 300 bn less. We planned the growth of income by 8% compared to last year, in fact, in the income base is still minus 8%.

In general, if you look at big business in the main industries, there is a slight slowdown. In the manufacturing industry it is due to the external business environment and decrease in demand in the world market.

In the oil and gas sector, both volumes have declined and the price has fallen. And if the price has recovered more or less, however, the companies' revenues are lower by 20 to 40% due to the decline in volumes compared to the same period last year, which also affects tax revenues.

- Now the Moscow budget is undersupplied with RUR 300 bn due to the pandemic, what are the tax revenue forecasts for the end of the year?

- We expect that the revenue shortfall at the end of the year will amount to about RUR 550 bn against our plans, half of which - lack of planned growth, and half - a decrease compared to last year.

- To what extent did you have to reduce the volume of 2020 Moscow Targeted Investment Program?

- Approximately by 30%. However, we're not giving up on these projects, we're putting them on hold. Let's look at the situation with this year's revenues - as soon as the situation allows, we are ready to launch suspended projects asap.

- Will it be necessary to make changes to the Moscow budget law in connection with such reduction of revenues?

- This does not require changes to the budget law, as we do not provide for new expenditure commitments, but suspend projects that are provided for in the city budget.

- Will the new economic realities be taken into account in the 3-year-budget while adopting?

- Absolutely. This year's legislation allows for a later adoption of budget. We usually adopted it in October, and this year we plan to do it by December. We set aside a time frame specifically to better understand the picture of economic recovery and to predict revenue more accurately.

- It’s a crisis situation, what is happening to the Muscovites’ incomes?

- The personal income can be estimated by the personal income tax and aggregated information of the largest banks. We have seen a positive trend of 3% since the beginning of the year. Taking into account that the accumulated inflation is a little bit less than 3%, in the first half of the year we do see not just the growth of incomes, but the growth of peoples’ real incomes.

- When can we expect the full recovery of the Moscow economy after the "coronacrisis"?

- In general, we see a positive trend and can expect to return to pre-crisis levels by the end of the year, or perhaps even with a slight surplus. It is necessary to understand that in general the economy of Moscow and all the world's largest megacities as well is diversified and it has a high share of the service sector. And this sector is very mobile. It reacts quickly to changes in external business conditions.

- What trends are currently observed in the Moscow property rental market?

- If we take the Moscow-owned property, there is basically no slowdown in auction activity. On the contrary, the number of bidders increased, the excess of starting prices remained at approximately the same level.

We receive signals from the market that tenants' activity has decreased, but there is no situation that everyone is moving out or closing in mass. I am sure that the decline in activity is due to the fact that all entrepreneurs are now assessing the situation with consumer demand, how quickly it will recover. In Moscow, we basically see that the revenue in retail has increased, but the attendance at shopping centers has recovered only by 60-70%. Everyone understands that the virus hasn't gone anywhere, and the population is behaving carefully.

- Won't this situation lead to the closure of shopping center?

- I think that the epidemiological situation and the current economic state will accelerate the process of reformatting shopping centers. I do not think that shopping centers will be closed - owners, brands, profiles may change. The commercial real estate will still be in demand in the coming years. The issue is how efficiently it is used and what functions a particular site has available.

- How much has the Moscow manufacturing industry recovered, after the restrictions had been lifted?

- The workload of industrial enterprises currently exceeds 80% on average. Almost all enterprises have already entered a normal operation. It is important to understand that in Moscow there are various industries, and if the pharma and the production of medical devices showed growth, then, for example, the mechanical engineering had it heavier.

In general, all planned investment projects in the manufacturing industry will be implemented. No one has given up on development - it speaks best about stabilization of the situation and normal business feeling.

- Many believe that the crisis will lead to the closure of businesses, hit small businesses and lead to mass bankruptcies. What's really going on right now?

- We don't see a spike in bankruptcy. We monitor the number of enterprises that have filed bankruptcy suits, the level of open bankruptcy cases - now they are absolutely average.

- As part of several anti-crisis packages, the Moscow Government has provided significant support measures to businesses worth RUR 85 bn. Is there a need for a further deferral in payments?

- The prerequisites for extending or expanding support measures are not yet in place. Entrepreneurs have already received all the deferments, we will see the total amount of subsidies requested only by the end of the year.

The main sectors are recovering very quickly, the problems are mainly of a point nature and concern several sectors that are not yet fully operational. We analyze their status and do not see any system threats now. However, we are in constant dialogue with the Moscow business, our decisions are based on the real situation assessment and if the situation changes, we will return to this issue.