The tightening of U.S. sanctions could send the Russian economy into recession, strengthen the dollar to 82 rubles, and to provoke further outflow of capital, predicts, “Renaissance Capital”. But this is an unlikely scenario
Photo: Maksim Blinov / RIA Novosti
The prospect of a recession
The spread of American sanctions on Russian sovereign debt will cause the country a recession in 2019, which resulted in the GDP will shrink by 1.1% and the dollar strengthened to 81.5 rubles, follows from the hard scenario of the macroeconomic forecast, “Renaissance Capital”, assuming price of oil at $60 per barrel. The review, received by RBC prepared by the economists of “Renaissance Capital” Oleg Kuzmin and Charles Robertson. However, experts note that restrictions on debt they consider it unlikely.
The starting point of their calculations, economists took the average score (26%) share of foreign OFZ holders and estimation of the share of foreign ownership of the Russian shares (50% of 5 trillion rubles.). It is due to the sanctions, the flight of foreign investors experts believe the main source of possible negative trends. Even if the sanctions will apply only to new debt, old will sell, said RBC Kuzmin. “Out of the OFZ will provoke from the Russian stock and increase the outflow of capital, the economist noted. — As a result of a weakening ruble, accelerated inflation, reduced real wages and incomes of population, increase in the key rate, tightening monetary conditions for business, and increases the overall uncertainty.”
In April, the U.S. imposed against Russia new limits. In the sanctions list was added 24 people, including seven Russian “oligarchs” and more than a dozen officials, and 14 companies, including UC Rusal and group En+ Oleg Deripaska. In mid-August, sanctions the risks have increased after the U.S. Congress published a draft law “On the protection of U.S. security from the aggression of the Kremlin” (DASKA), which prohibits transactions with the new sovereign debt, to which is attributed the debt of the seven Russian state-owned banks. The document, which is the hard version of the financial limitations of the previously proposed, can be adopted in the autumn, allow the experts. In addition, in late August entered into force the approval of the state Department related to “business Skrypalia”, involving the termination of foreign assistance, arms supplies and financing for the purchase of weapons, the refusal of American state and ban export to Russia of goods and technologies sensitive from the point of view of national security of the United States.
If the share of foreigners in the OFZ will be reduced to 10%, and Russian shares up to 20%, then the hard scenario, and the price of oil at $60 per barrel, additional capital outflows of $71 billion, or 5.8 trillion rubles., analysts write: 1.2 trillion rubles of OFZ 1.5 trillion rubles from the shares and 3.1 trillion rubles — with an increase in the level of dollarization of the economy, economists say. Inflation in this case next year will reach 8.6%, while the key rate by the end of 2019 will reach 15%. While inflation, though accelerated, but is still below Central Bank target of 4% (in July the growth of prices amounted to 3.1%). It will exceed the target next year in connection with the VAT increase, the predicted power and intelligence.
The experts also consider more “soft” scenario of the expansion of sanctions, in which the ruble will weaken to 74.2 rubles per dollar, a further outflow of capital amounted to $43 billion, or 3.2 trillion rubles: 600 billion rubles from OFZ 675 billion rubles of shares and 1.9 trillion — with increasing the level of dollarization of the economy, follows from the forecast.
The baseline scenario
The Bank’s baseline scenario assumes sanctions will remain roughly the same as now, and the price of oil will be the same $60. According to the forecast of economists, the economic growth in this case will amount to 1.9% in 2018 (compared to 2% in the previous forecast, which was wrong even before the increase in VAT and the retirement age), in 2019 it will slow down to 1.4%. The acceleration of inflation to 5.2% as a result of the VAT increase and tighter credit policies will help slow consumer and investment demand in 2019 and 2.6 and 2.7% respectively (versus 3.8 and 3.3% respectively in 2018).
In 2019, when the price of oil at $60 per barrel, the dollar strengthened to 67 rubles, experts say. If the price of oil will not change and will amount $70 per barrel, the average dollar exchange rate will be 65 rubles.
The Economy Ministry Forecast
Wednesday, September 5, the Ministry of economic development has slightly increased the average dollar exchange rate for 2018 from 60.8 to 61.7 RUB on the background of toughening of monetary-credit policy of the fed, the withdrawal of investors from emerging markets, strengthening trade restrictions and prospects of new us sanctions. Forecast to 2019 — RUB and 63.9 (63.2 per RUB). At the same time, the Agency sharply raised its forecast for capital outflow for the year 2018 from $18 billion to $41 billion Forecast for economic growth for 2018 and 2019 was reduced by 0.1 percentage points, to 1.8 and 1.3%, respectively.
Thursday, August 30, the recession of the Russian economy as a result of sanctions against sovereign debt in its forecast made and the chief economist BCS Vladimir Tikhomirov. In his opinion, the slowdown in retail trade turnover and investment as the unwinding of inflation, the weakening of the ruble and the increased cost of credit would reduce GDP by 0.3% in 2019. The average dollar exchange rate in 2019 will amount to 76.8 per RUB, Brent crude — us $73.9 per barrel, it follows from the negative prognosis of BCS. According to the baseline forecast of economists, GDP growth in 2019 will amount to 2%, the average dollar — 61,6 RUB, and the price Brent — us $73.9 per barrel.
In mid-August, a senior economist at Danske Bank Vladimir miklashevskii predicted strengthening of dollar to 75.1 RUB for 12 months in terms of geopolitical risks. The draft law “On the protection of U.S. security from the aggression of the Kremlin”, extending sanctions on Russian debt, could be adopted in advance of the November midterm elections in the United States, said miklashevskii.