Thursday, 3 November 2011The worsening economic turbulence in Europe threatens to exacerbate Russia's high levels of capital outflow, but is unlikely to cause a full-blown economic crisis, analysts said on Thursday.
That’s as long as prices for oil, Russia's core export, are stable.
Europe’s economic problems returned with a vengeance this week after Greek Prime Minister George Papandreou said he would hold a referendum on whether to accept a 130 billion euro bailout and debt write-off from the EU conditional on more budget cuts. The fate of the plan is the center of discussion at the Group of 20 summit taking place in Cannes, France on November 3-4.
Greeks may well vote the rescue program down, which would almost certainly result in the country leaving the eurozone and possibly triggering a wave of banking collapses.
"If worst comes to the worst, and Greece leaves the eurozone, market panic and economic decline will affect Russia too, which will tell not so much on the trade balance ... but on capital outflow from Russia, which will increase," Investcafe analyst Anna Bodrova said.
Investors panicked by the European crisis will lose appetite for risk, which Russian assets represent, and will also try to solve their liquidity problems with the help of their Russian subsidiaries, adding to capital flight and further weakening the ruble.
The central bank nearly doubled its 2011 private capital outflow forecast this week to $70 billion from $36 billion previously.
Analysts say poor economic performance, an unfriendly investment climate and political risks ahead of forthcoming elections are key drivers behind the capital flight, but the eurozone crisis will add to the problem.
Capital flight will increase amid the panic on world markets unless the government takes drastic measures to stop it, said Sergei Sheremet, a senior analyst Radar consulting firm.
"Otherwise, the impact of the European crisis will be significant, perhaps even leading to a complete share trade ban for the largest public companies. They may decide to impose an embargo and tighten foreign exchange controls," Sheremet said.
THE RUBLE
As an emerging nation’s currency, the ruble is strongly dependent on external factors, Bodrova said, especially since the central bank had reduced intervention lately.
The official rate of Russian ruble for tomorrow fell 16 kopecks against the dollar to 30.84 and 7 kopecks against the euro to 42.21 on Thursday.
Bodrova said she expected the ruble to be volatile within the 30.60-31.50 per dollar range, heavily affected by European turbulence.
Economic problems would be limited to financial markets only as long as the price for energy, which accounts for almost half of Russian budget revenues, does not drop.
"The crisis will affect Russia to the extent that ordinary people would feel it, only if the oil price falls. What we have seen so far, is that despite all the troubles in the eurozone, oil is stable," TKB Capital analyst Sergei Karykhalin said.
Brent oil is currently trading just below $110 per barrel which is above the level on which Russia’s budget is planned, and it is not expected to fall in the near future, according to analysts.
"You should start worrying when oil drops below $100 per barrel. As long as it is above $100, no one will fear for the Russian economy and the ruble exchange rate," Karykhalin said. |
Thursday, 3 November 2011
Ria Novosti
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