CEOs’ Opinions & Prognoses

Traditionally, as the year winds down, companies review their performances in the outgoing year and map out plans for the coming one and 2008 is not an exception. Understandably, most people are, first and foremost, interested in what is happening in the global economy and financial markets. Unfortunately, the current crisis will only get worse; the stock markets will continue their downward trends, while 2009 will be a year of mass bankruptcies of companies.  

Economy enters into an era of ‘expensive’ money

Russia, just like the rest of the world, has entered an era of ‘expensive’ money characterized by rising costs of credits, increasingly difficult access to capital and falling prices on strategic  resources. The latter factor will impact most negatively on Russian oil companies and the federal budget. This is because lower oil and gas prices will lead to a drastic decrease in government’s balance of payment, while the ruble will continue to devalue against other currencies on the background of increasing capital flight. However, the current situation does not call for the panicky moods of the 1998 crisis, but one needs to think seriously over diversification of savings into different currencies, partly because we expect the devaluation of the ruble to accelerate in 2009, with the exchange rate standing well above 30rubs per dollar.

The Russian stock market to fall further

"However, the current situation does not call for the panicky moods of the 1998 crisis, but one needs to think seriously over diversification of savings into different currencies."

Regarding the fall of the Russian stock market, the negative trends have yet to reach their bottom, because the RTS Index fell as low as 38 points during the 1998 crisis. In other words, Russian companies’ stocks could still fall further. Besides, the Russian stocks, even after falling to the lowest ebb and rebounding upward, will not start rapidly gaining in values. This is because the capitalist economy, by nature, is cyclical, meaning that the current crisis will not be followed by recovery, but stagnation.

A positive side of the crisis

The above negative issues notwithstanding, there are, however, positive news: first, the dangers of imminent inflation or even hyperinflation, which analysts are forecasting as certainty, are not very real. Indeed, we see a deflationary scenario as the most probable outcome. Second, this crisis is giving Russia a unique chance to become stronger in different economic sectors in the post-crisis global economy. For instance, if the government is able to prevent the devaluation of the ruble, then the local legal tender stands a very good chance of becoming a regional reserves currency.