The expert predicted the global economic crisis: when will it come to Russia

The Bank of Russia presented three scenarios for macroeconomic development – “basic”, “accelerated adaptation” and “global crisis”. The regulator expects the possibility of the described events to occur within three years – from 2022 to 2025. The document published on the website of the Central Bank deals with the conditions in which our country will develop, taking into account the processes taking place at the international level. But today the state of affairs in the world is such that events can unfold simultaneously according to three scenarios simultaneously – and in the very near future. Such a forecast in an interview with MK was given by Mikhail Vasilyev, chief analyst at Sovcombank.

— When is the scenario presented by the Bank of Russia most likely in the near future?

— We expect that next year there will be a combination of all three scenarios that the Bank of Russia described. First, we forecast a global recession in 2023. Energy and food crises, record global inflation and falling household incomes, the fastest increase in rates by world central banks in 20 years, geopolitical contradictions, new waves of the pandemic – all these factors are leading to a rapid deterioration in economic conditions in the world.

– This, as I understand it, is from the scenario of the “global crisis” at the Central Bank?

Yes, but that’s not all. Secondly, we expect Russia to handle the global crisis better than others, which makes this scenario look like a “fast-track adaptation”. We do not predict a deepening economic downturn and a significant increase in inflation in Russia in 2023. At the end of this year, we expect a decline in GDP at the level of 5%, while the risks are rather shifted towards a smaller contraction of the economy. In 2023, we are counting on the adaptation of the domestic economy and a smaller decline in GDP than in 2022. We believe that Asia will weather the economic downturn better than the West, so Russia’s reorientation to the East and the development of its own production will help maintain employment and reduce the economic downturn.

In addition, Russian companies, with the support of the government and the Bank of Russia, will be able to rebuild the main supply chains from West to East within a year, as well as establish local production in critical industries. This will avoid a shortage of goods and a surge in inflation. We expect inflation to be lower in 2023 than in 2022, and our baseline scenario for this year is 11-13%.

Why is she slowing down?

— A relatively stable ruble exchange rate will help slow down inflation in 2023. Recall that during the covid recession of 2020, when oil fell to $20 per barrel, the ruble against the dollar dropped to 80 rubles per unit of US currency. This was mainly due to the outflow of foreign capital. We expect that in 2023, in the context of continued tight restrictions on the movement of capital, the dollar exchange rate will not exceed this value.

In addition, fiscal policy in 2023 will remain stimulating and support the economy. We look forward to increasing investment in strategically important industries. The budget deficit is likely to be financed by the National Wealth Fund (NWF) and the placement of new debt – there is significant room for increasing public debt.

In our opinion, accelerated adaptation requires an economic development strategy for the coming years, as well as coordinated work of the government, the Bank of Russia and business to achieve the set task. We believe that business will be able to reconfigure supply chains faster and more efficiently with prompt support from the government.

— What will the global world crisis look like?

– Geopolitical contradictions between Russia and the West, between China and the United States intensify the processes of deglobalization, which negatively affects the world economy. The IMF warned that a serious medium-term risk is that the protracted crisis in Ukraine will contribute to the fragmentation of the world economy into geopolitical blocs with clearly distinguishable technological standards, cross-border payment systems, reserve currencies.

The likelihood of this scenario has increased after the visit of the Speaker of the US House of Representatives Nancy Pelosi to Taiwan. We can expect further aggravation of the geopolitical confrontation between the US and China. Now, not only the Russian Federation, but also China will probably not buy American and European bonds, but will try to move away from dollars and euros.

– Sanctions will increase?

“We do not expect an early end to the conflict in Ukraine, nor a significant expansion of anti-Russian sanctions. I think that a noticeable deterioration in the economic situation in the West will increase the desire of local politicians to negotiate with Russia.

– And when will these problems reach our country?

– It is difficult to name the exact timing of the global crisis. The global economic downturn, according to our forecasts, will come within the next 6 to 12 months.

The global recession could have a negative impact on the Russian economy due to lower commodity prices. Prices for oil, gas and other raw materials determine the budget revenues of the Russian Federation and Russian companies, have a strong influence on the ruble exchange rate, debt and stock markets, inflation and interest rates in the economy.

In addition, the global economic downturn will also affect Russia’s main trading partners – China, India, Europe, etc. As a result, the demand for commodities will decrease, which means that Russian exports and commodity incomes may fall.

As for oil prices, we see risks of a significant drop in 2023. Recall that during the global financial crisis in 2009, Brent oil fell to $40 per barrel. During the COVID-19 pandemic in 2020, Brent dropped to $20 per barrel. At the same time, Russian Urals oil may fall even more – in July, the average Urals discount to Brent was almost $27 per barrel.

The global underinvestment in the oil industry and the coordinated actions of the OPEC+ countries to reduce their own production can contain the fall in oil prices. At the same time, as the economic downturn in the West deepens, more and more countries will want to buy Russian oil at a discount and support their own industries, consumers and jobs.

How can Russians protect themselves from the global crisis?

— From the point of view of preserving savings during a crisis, it is possible to form a portfolio of protective assets. It may include ruble bonds of reliable issuers or federal loan bonds (OFZ) with a short maturity, a portfolio of currencies of friendly countries that are stable against the dollar – you can consider the yuan, the Hong Kong dollar, the UAE dirham, as well as investments in real estate and gold.