Russian Economic Development Minister Elvira Nabiullina, has told the State Duma the Russian economy is sensitive to the outlook for stagnation in developed economies.
Minister Nabiullina, noting that the need for developed economies to make budget savings, particularly in Europe, Russia’s largest trade partner, meant that there was a serious risk to the global financial system, with an increased likelihood of recession in the developed world.
“Global risks have increased sharply, risks linked to the deterioration of the global economy and deeper capital outflows. Europe’s debt problems could shake the global financial system and restrict growth potential all around the world,”
She added that the implication for Russia was considerable, with raw material exports likely to suffer.
“The new wave of international crisis, if it comes, or prolonged stagnation in developed countries, in our opinion will probably have quite an impact on us,” and adding “The 2008-2009 crisis, as with the current upheaval on global financial markets, showed that Russia is subject to significant risks,”
However she added that the underlying Macro position of the Russian economy gave it some scope for confidence, noting high levels of reserves, low debt levels and an ongoing current account surplus.
“Our position is not so bad. We have relatively low debt – the government, businesses and the population. In the post-crisis period, banks considerably improved their foreign currency positions and the quality of their assets. Gold and foreign currency reserves remain high and there is a good current account surplus. In contrast to the pre-crisis period, the stock market is not overheated,” adding “Now we do not have the pre-crisis [budget] surplus that we had in 2006-2007. But overall our budget position is not bad,”
She noted that despite the underlying budget position, Russia needed to prompt consumer spending to help Russia weather a global slowdown.
“If in the short-term the Russian economy is well enough prepared for possible disturbances in the global economy as well as the situation in the corporate sector and the budget, which will probably be deficit-free this year and is forecast to have low deficits in the next three years, then prolonged stagnation [in developed countries] will be difficult to survive just with savings. Domestic sources of growth – consumer demand and investment – are needed to withstand prolonged stagnation in the world economy,”
Observing that Russia’s capital outflow had reached around $50 billion over nine months, she said this was a reflection of global events.
“There has been a serious increase in the capital outflow in the last few months due to the situation on international financial markets.”
Deputy Economic Development Minister Andrei Klepach said on Wednesday that he thought the capital outflow could slow towards the end of the year or during 1Q 2012, forecasting that the full year outflow should be about $50 billion.
“We still believe that the outflow should come to a halt. There might be a slight return of funds [at the end of the year] but not a lot. Therefore, it is clear that we probably won’t reduce the amount of outflow that there is now. Maybe at year’s end it will be the same level, around $50 billion, or possibly higher or a little bit less.”