Tugas 2 bahasa inggris
Can Russia's Economy Recover in 2016? (Op-Ed)
- By Martin Gilman
- Dec. 24 2015 17:20
- Last edited 11:36
A. Astakhova
/ Vedomosti
Martin Gilman
A year
ago it seemed that the Russian economy was in free-fall. One rating
agency, when downgrading Russian credit early last January, cited
a significant deterioration in the economic outlook,
the continued impact of western sanctions, plunging oil prices,
shocks to the banking sector (from the ruble depreciation, market
volatility and drastic hikes in policy rates) as some of the
main reasons.
The turmoil in Russian
markets toward the end of last year came on top of a period
where most of the main macro-economic indicators were already
a source of growing concern. As the International Monetary Fund noted last
summer, Russia already entered 2014 with declining potential growth owing
to the stabilization of oil prices, stalled structural reforms, weak
investment, declining total factor productivity and adverse population
dynamics. In addition, the ongoing
slowdown was exacerbated by the dual external shocks from the sharp
decline in oil prices and sanctions.
With Chinese
demand withering and US shale producers coming on stream, OPEC became
increasingly an irrelevant sideshow. In these circumstances,
the seemingly irreversible softening in oil prices led to severe
pressure on the ruble, a surge in inflation, market turbulence,
and concerns over financial stability. In response,
the authorities accelerated their long-anticipated move to a floating
exchange rate in November 2014, thus protecting both the budget
and foreign exchange reserves. As the ruble dropped, inflation
accelerated and hit double digits on an annual basis starting
in December 2014.
The accelerating
decline in world oil prices and the steady strengthening of the
US dollar in the second half of 2015 have imposed a double
whammy on the Russian economy. In retrospect, the forecasts of a
year ago now appear to have been far too optimistic with respect
to both of these parameters over which Russia has no control. Real
income has declined along with productive investment. In the climate
of uncertainty prevailing this year, not to mention geo-political
concerns, neither consumers nor enterprises were anxious to spend. Bank
borrowing has reflected this relative abstention.
As
a consequence, real GDP is now
expected to decline by 3-4 percent driven by a contraction
in domestic demand weighed down by falling real wages, high interest
rates, and weakened confidence. With the underlying determinants
so much worse than foreseen earlier in 2015, it says something about
the resilience of the economy that the expected outturn is not
even worse. For technical reasons, there is a reasonable chance that
the poor results for this year may be revised upwards.
Like
the rest of the world, there is nothing that Russia can do about
the surging value of the US dollar. From 52 rubles to a
dollar a year ago, the exchange rate now stands at 71 rubles,
a depreciation of 27 percent. Russia is not alone. Even the Euro
has depreciated by about 11 percent. By allowing the ruble rate
to adjust, the Central Bank has been able to maintain its
foreign exchange reserves, limiting the drop to 4 percent.
But what
about next year? Many observers consider that the economic situation will
continue to unravel.
There has
been considerable hand-wringing about Russian economic prospects. This is no
surprise as the oil price this week hovers around its lowest point
in 11 years, or just over $34 per barrel. No doubt the prices
of Russian assets reflect a significant risk premium
to compensate for a potential crisis situation on the back
of further drop in oil prices, geo-political confrontations, on-going
sanctions (and the associated limited access to markets, banking
sector stress, and corporate default concerns), and deeper economic
stress — since all of these risks are biased to the downside
in the near term. And, in the longer term, there are of course
additional concerns such as the rule of law, the protection
of property rights and the general legal framework, which are clearly
not among Russia's competitive advantages.
This may be
too pessimistic. Modest growth should resume in 2016. However,
the recovery is likely to be modest as the limiting factors
behind decelerating potential growth will take time to be addressed,
leading to medium-term growth of 1-2 percent per year.
Unfortunately,
despite all the talk about economic diversification, the years
of high oil prices discouraged the galvanization of political
will to pursue tough structural reforms to improve
the investment climate. A long period of oil prices below $ 40
per barrel might just be the trigger to induce piece-meal structural
changes as foreshadowed in President Putin's annual address to the
Federal Assembly earlier this month.
It could also be that
the pervasive sense of pessimism has been overdone. When we start back to work
after the New Year's holidays, we should not be too surprised by the
headlines reporting the welcome drop in inflation back
into single digits (largely because of base effects, but real
nevertheless). And barring a geo-political disruption, the CBR
will be able to proceed rapidly to cut its benchmark discount rate
starting in the first quarter of 2016.
That said,
medium-term prospects remain highly uncertain. The external environment is
not benign: there are just too many accidents waiting to happen
in economic and financial terms, whether in the Eurozone,
the Middle East, China, or Japan. And more fundamentally, if Russian
policy-makers cannot summon the political will to promote
a thriving private sector, then productive investment as the critical
driver of long term sustainable growth will not materialize.
Martin
Gilman is a former senior representative of the International
Monetary Fund in Russia and a professor at the Higher School
of Economics.
NAMA :MUHAMMAD RIZKI FAJRIN
KELAS :4EA14
NPM :14212826
