FBK Economic Club on the 2016 outlook
Date of publication
16.12.2015Igor Nikolaev, Director of the Institute for Strategic Analysis at FBK, gave his projections on the key macroeconomic performance. According to Nikolaev, GDP could reduce by 2-3 percent, inflation will fluctuate within the range of 10-12 percent, average annual rouble to US dollar exchange rate will be 80 to 1. The expert went on to warn against jumping to conclusions by saying «though these assessments are quite optimistic, even better than a year before, there is no room for complacency». He suggested comparing current economic environment with the crisis of early nineties when Russia was being dragged into a grave structural crisis. He went to explain that «that was the crisis of a transformational character. The crisis moved from 1992 when the country was experiencing a sharp slump with a slight upward trend in 1993 to a hard economic failure in 1994. The current crisis is likely to take the same path. And my greatest concerns go beyond 2016, we will have run out of the Reserve Fund and have to tap into the National Welfare Fund».
Sergey Dubinin, the Chairman of the VTB Bank Supervisory Council, the ex-Chairman of the Bank of Russia, challenged Nikolaev’s comparison. The expert noted, «This day economy is going through an active phase of the financial recession, but that does not necessarily mean that this is an acute phase of the crisis which could lead to cascading bankruptcy of banks or a budget failure. There is no evidence of institutional collapse as in the nineties. The banking system operates quite well». According to Dubinin, the current recession is an investment one. Economy had slowed before major turbulences in the currency and oil markets occurred, even before sanctions were imposed. He added, «Investments have been down for three years already, which does not give much ground for optimism talking about economic growth in the years to come».
Vitaly Tambovtsev, the Head of Laboratory for Institutional Research at the MSU Department of Economics, drew the audience’s attention to another aspect of the current recession, to institutional one. The expert noted that there is no hope for the institutional environment to improve in the foreseeable future.
Andrey Movchan, the Director of Economic policy programme at the Carnegie Moscow Centre, noted serious risks which expose the country’s economy to instability. He believes that the first and the most serious risk is one that could affect the financial system of the country in 2016. The expert warned against a situation where, in having a negative capital across a banking system, you never know where the explosion goes off. If you curb small forest fires, you eventually have a great deal of deadwood and a huge fire destroys the whole forest territory. The same could occur to a banking system.» The second risk is associated with construction. Construction volumes are going sharply down. 2016 is likely to witness a two-fold drop in construction market. This will hit hundreds of thousands people engaged in construction. The third risk could arise further into the future. Projecting into the future, to the period of 2017-2019, we may face risks associated with oil production decline as well as risks associated with the failure of small- and medium-sized businesses.
Whereas Andrey Yakovlev, the Director of the Institute for Industrial and Market Studies of the Higher School of Economics, mentioned a number of positive factors. Russia has been witnessing the establishment of mid-size business sector over the last fifteen years which is quite a success, which has assets, which has something to lose and which could serve as a pillar for economic growth given other institutional environment. The level of competences and qualification of government officials has also risen. There is also a middle class ready to protect and stand for its rights. Besides, he mentioned a positive economic outlook of foreign investors in the long term owing to natural resources and market segments where efficient companies could demonstrate a double-digit growth during several years in a row. Russia is still a country of ample opportunity unlike Russia of the nineties when it was a great country with petty economy. High level of urbanization combined with quite a high level of education could also be seen, according to Yakovlev, as major advantages.
Alexander Knobel, the Head of the Laboratory for the International Trade at the Gaidar Institute, noted significant impact of external factors on the country’s economy. He went on to explain, «The government does not rely much of the economic performance in the long term. The economy is trying to overcome the pressure of the imposed sanctions and retaliatory sanctions, oil prices, the way the rouble responds to the oil price fluctuations. Institutional challenges associated with the activities of the law enforcement bodies are also beyond the scope of economic authorities’ control».
In his closing remarks, Nikita Maslennikov, the Adviser of the Institute for Modern Development, noted that major budget risks will arise not in 2016 but in the years beyond 2016,
«The country is having to realize that it will get even worse, if no changes are implemented. The over-reliance on oil is no longer viable. We have to meet structural change head-on».
The FBK Economic Club is a unique discussion forum which facilitates expert insights exchange between mass media and renowned economists, politicians and government officials.
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