Friday, July 21, 2006

Economy of Deficit hits Russia

Property, wine, cars are all in deficit and are priced higher than ever.

Russians, having experienced shortages of wine, have now resorted to buying and selling places in queue to buy popular foreign cars, such as Ford Focus. Car dealers, having not anticipated the increase in demand (analysts calculate it has risen by 50 percent), have run out of car models for the next few months at least. There were 400 thousand foreign cars sold in Russia in the first half of 2006. The most popular makes were Hyundai, Toyota and Ford. There is a 9 month waiting list to buy Ford Focus and Honda Civic. Car dealers are also experiencing shortages of transportation trucks needed to bring in extra automobiles from the makers. It appears that some have even resorted to using the railroad as a method of transporting vehicles.

Not surprisingly, the second hand market have seen rising price on already overpriced models sourced from abroad, usually in an opaque manner.

This shortage is attributed to yet another deficit, this time on the property market. Due to scarce availability and high prices (Moscow properties have added 30 percent to their value in the last half of the year), many have lost any hope of getting a foot on the property ladder, and as a result have moved their sight onto the automobile market.

Borrowing to buy a car in Russia is a much simpler process than acquiring a mortgage, something which can only be afforded by an estimated 1 percent of the population.

This deficit follows those present in other markets, notably in the alcohol and luxury goods sectors. As a result we are seeing prices many times higher than those in the West.

Vedomosti, RusEcon

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