According to many experts, the main result of 2018 was the exhaustion of the previous mechanisms for the growth of the world economy. Of course, this could not be reflected in the financial markets. The result was a unique situation when for the year 93% of all global asset showed negative returns. This, according to many experts was not observed in the entire history of modern economy.
“What are the main causes of such a scenario, and what awaits Russia in the near future?” — asked “SP” the main analyst of Bank “Solidarity” Alexander Abramov.
In the first half of the century was a period of low interest rates, the fed [the U.S.], and he did not last long. The minimum bet at 1% lasted only a year, and the rate below 2% lasted three years. As a result, a short period of cheap money happened, we remember the crisis of 2008-2009. And now 7 years had a zero rate, and as a result, markets gained an unprecedented amount of imbalances was printed a huge amount of unsecured dollars and other currencies.
The leading Central banks, the monetary base increased by 4-5 times. But this has not led to dramatic acceleration of the global economic growth that would gradually reduce the debt burden. However, the markets have inflated an unprecedented bubble. For example, in the US, the ratio value of the share to the revenue reached its historical maximum, which was recorded just before the great depression. But the level of the risk premium in the financial market dropped to unprecedented low values. As a result, many companies and projects, which under normal conditions would be unsustainable, were able to obtain financing. But their profitability is so low that any change in market conditions for them may be fatal. Because of this, they will not be able to pay its obligations that the chain will hit the entire financial system. Meanwhile, the Outlook for the economy has worsened, liquidity has become more expensive. And since global markets first to react to such changes, since the beginning of the year started to shake.
“SP”: — Can you give examples?
In February 2018, was the first collapse of the U.S. markets, when the Dow fell more than 1,000 points, twice. But then if the American market was able to recover and until October there was continued growth, global markets in General, if you take China, developing countries, Europe in General, peaked in January and then gradually decreased. And the end of the year, when the Federal reserve began to withdraw 50 billion dollars a month, and four times raised, started a real collapse. In December, the U.S. market fell by about 10%, which was the worst December result since the same “great depression”.
“SP”: — it Turns out that now the economy is actually on the brink of a second great depression, only this time on a global scale?
— I would put the question a little differently — if we’d go on the way of the “great depression” or choose some other scenario. And then there are options. From the fact that the global economy will slide into this very depressed to the point that separate regional blocks will start to become independent and to stabilize its position.
“SP”: — from what or From whom does it depend?
It depends on the key countries — the US, China and Russia. The European Union is likely to own where to steer.
“SP”: — They take some steps? And how effective are they?
For instance, the US see that the existing mechanisms of growth have been exhausted, but as long as they have a powerful military-political influence, trying to reshape the rules of international trade in their favor at the expense of other players. They went the way of bilateral deals that give them the unilateral advantage. So, they have concluded agreements with Canada, Mexico and South Korea, are negotiating with Japan and the European Union, with serious implications. To protect their producers they imposed import duties on steel and aluminium, which violate the rules of the WTO, is preparing to impose import duties on cars. They are trying to create a bloc of countries that will conduct the trade policy in line with the corresponding interests of the United States. Passed, by the way, the information that the terms of the new trade agreement with Canada and Mexico the United States essentially have the ability to block access to this unified market for goods from other countries that do not meet their interests. Now we are seeing unfolding story associated with restrictions and prohibitions on the purchase and import of Chinese smartphones.
“SP”: — And how, by the way, builds up the relationship America has with China?
Is the largest competitor of the United States, and with him they acted very differently than with the others, unleashing an economic war. According to Washington, the world’s biggest economy may be only one country. And just as 30 years ago the question was — America or the Soviet Union, now the question is USA or China. So America and imposed customs duties on Chinese goods in an unprecedented $ 250 billion, and is considering the opportunity to continue to increase. However, in December, the U.S. was forced to briefly postpone a further increase, but of the illusions on this score you should not feed. Because the fundamental interests of the American industrial elites require a revision of the basic mechanisms governing international trade. And under the current system they have absolutely gigantic trade deficit with China. So they have to either somehow get China to agree to highly disadvantageous conditions, or simply to break the relationship, closing the access to the internal market.
“SP”: — China, too does not remain aside and takes some action in response?
— Of course. The Chinese, for example, began to prohibition of separate models of the world famous American smartphones.
“SP”: — Well, what about Russia? What are her chances in this struggle of the world’s economies?
— Oddly enough, but our fundamentals are good. We have a low level of debt, there is no level of over-indebtedness of companies and households. Yes, gradually the debt burden on citizens is increasing, but it is very far from that of not only developed but also many developing countries. And we have such a large amount of excess capacity that for many countries, export-oriented, is a problem. In particular, due to the excess capacity the decline in the world market has very much the same in Germany and South Korea. They are not able to compensate for falling demand by the domestic market, they need serious structural changes. And Russia has not managed to date to increase to significant levels seriously undermined in the 90-ies of the last century the industry, therefore the potential drop, respectively, below.
“SP”: — is it in Russia so all is well?
— We have our own difficulties. First and foremost is the vulnerability of the budget system, its dependence on raw materials. Here from October of 2018 began to decline in the price of oil. They have already lost 40%, and still lose, probably the same. As a result, we see falling budget revenues. Historically, we have only one way to respond to such changes is the weakening of the national currency. Otherwise, we will actively decrease our foreign exchange reserves, and further still, the currency will have to weaken. All of our post-Soviet experience shows that if prices fell, energy, and fell for a long time, so the fall of the national currency is not far off.
“SP”: — But it is trying to do something with this in the past year?
— He turned to Russia is very uneven. It started well — the economy recovered after the crisis of 2014 to 2016, a presidential election was held. Then it seemed that the country will start to develop. But in April, followed by American sanctions against a number of Russian companies, in particular, against RUSAL was the largest in several years, the collapse of the stock market, sharply increased the outflow of capital, domestic debt market also suffered. The corporate bond market was growing 20-25% per year, but has now been frozen. In General, we have already started the economic crisis, but helped the rise in oil prices above $ 70-80, happened against the background of restrictions initiated by the U.S. against Iran. But the respite was short-lived. In August was followed by another round of sanctions, which coincided with the massive wave of weakening of the currencies of most developing countries.
In the end, by September the dollar against the ruble has updated the highs from 2016, Skakov above 70 rubles. Of course, the government began to take measures for compensation for lost income in the form of reductions in social spending, raising the retirement age, the growth of VAT, a tax on self-employed and so on. But the effect of these measures may well be counterproductive, because half of the population has lost confidence in the government. And then there’s the renewed fall in the world markets, the level of business activity in Europe and China has fallen to multi-year lows. Naturally, all this has led to a decline in oil prices, and we see that by the end of the year the stock market decline and the national currency started to gain momentum. And, apparently, all the lows they have yet to come.
“SP”: — so, what’s the big deal if the government has already reported that for the first time in many years adopted surplus budget?
— The fact that the surplus he is likely to remain only on paper. Because now our Central Bank predicts the possibility of reducing oil prices to $ 35, which is below the prices laid down in the “budget rule”. And the dynamics of real incomes of the population for the fifth year in a row negative, so we cannot say that our economic policy is in General successful. However, on the other hand, on the background of the escalating crisis is likely in the near future for most countries will be characterized the same dynamics. And here the question is not who will be able to avoid falling incomes, and who will be able to emerge from the crisis stronger than our competitors. In this sense, we have, in General, good prospects.
“SP”: — Why?
Because historical experience shows that Russia is capable of making a leap forward at a time of global crisis. At a time when the West was raging “the Great depression”, the Soviet Union for ten years managed to transform from a backward country into a superpower and was able to emerge victorious from world war II.
“SP”: — How this breakthrough can be made now?
— We need to look for internal reserves for development, finding external markets for products, which is especially important on the background of aggravation of struggle for them. You need to build more efficient trade-investment relations with other countries. We can offer a lot of technology and resources. In General, Russia has a good chance of coming out of the crisis stronger, but it will depend on us, not from external conditions. You need not to look for excuses why we are not growing the economy at the necessary rate, and to develop and implement appropriate programs and activities.
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