The FBK Economic Club’s outlook: Is the global economy bound to face new recession?

Are we bound to face a new round of global economic recession? When could it be expected and what might trigger it? What’s in store then for Russia? These and many other issues on the global economy outlook were in the limelight during a regular session of the FBK Economic Club.

Igor Nikolaev, FBK Partner, Director at the Strategic Analysis Institute, believes that with all optimistic global GDP growth forecasts, it would be prematurely to rule out the possibility of looming new recession. The expert named a cyclic nature of economic crises which burst out every 7-10 years as a background for this possibility. It was in 2008 when we faced the recent economic recession, and no one predicted that at that time. But a more weighty fundamental challenge is, in his opinion, today’s overcapitalisation of markets.

 “The growth outlook for the Russian economy is much dependent on the global economy. While the global economy, I believe, will do plunge into recession and it is very likely that it is the US that will plunge into the recession first,” Igor Nikolaev noted.

 Alexander Knobel, Director at the Center for International Trade Studies of RANEPA, noted that the global economy has been growing much slower over the last few years than a few decades ago, with the global economy demonstrating a negative growth in 2001 for the first time ever. It might mean that those growth engines that drive the global economy have been exhausted. It is much the same with the global trade where the growth rate has remained at the same level as that of GDP recently.

 He went on to explain that “Russia is very much dependent in its trade activities on external factors. These factors drive the situation with import and export transactions and the trade balance. And there is more to it than just oil prices. The thing is that we trade goods which prices are beyond our control, and we sell not more than the market is capable to absorb.”

 Alexander Gabuev, the Chair of the Russia in the Asia Pacific Program at the Carnegie Moscow Center, placed special emphasis on the role played by the Celestial Empire in the global economy. He linked China’s current positive growth rates to the upcoming twelfth congress of the Communist party. Billions of dollars are spent to keep the economy afloat and achieve a 6.5-per cent growth by the end of the year. It is, therefore, unlikely that the global crisis will burst out in China earlier than in the first half of 2018. And this is much dependent on the designations made during the congress and the approaches to be chosen to addressing the outstanding issues.

 “Is there a danger of impending China’s crisis having its impact on Russia? Little danger, as I see it. The trade volume between the two economies will face no significant changes, as Chinese investments into the Russian economy make as few as 1.5 per cent of 100 billions of Chinese investments into other foreign economies. We are much more dependent on oil prices,” Alexander Gabuev explained.

 According to Oleg Buklemishev, Director of the Economic Policy Research Center, Department of Economics, Moscow State University, there are many evidences that suggest the approaching financial downturn. One of such evidences is, in his opinion, the financial leverage which is the debt to equity ratio and which is continuously growing in the global economic environment.

 “However, there are things much more terrible than the financial crisis, and this is stagnation. The Japanese economy, while achieved its peak performance targets, has been trying to find a new purpose for many years already. Russia is, of course, on the other end of the spectrum, but with no profound changes the economy of this country will not be able to grow into the future, it is for this reason that crisis is not necessarily to the detriment of the country’s economy,” Oleg Buklemishev said briefly summarising the session.

 FBK Economic Club is a unique forum which facilitates expert insights exchange between mass media and renowned economists, politicians and government officials. The Club’s meetings also feature presentation of FBK research papers.