Unprecedented fiasco in economic analysis costs Russian businesses a lot in 2008
A majority of economic analysts in Russia in 2008 demonstrated full incompetence, which unambiguously highlighted their ‘professional ineligibility’ as they could not correctly foresee and forecast any of the vital business events in the outgoing year, according to the conclusions reached by the experts of the Institute of Globalization and Social Movements (IGSM) after studying all the recent key economic events that occurred in 2008.
“As a result of the abundance of incompetent forecasts and evaluations of trends by experts, several key Russian economic institutions and the general population found themselves in disadvantaged positions when the global economic crisis finally hit the country, as nobody was able to prepare seriously in advance for the new realities caused by the crisis,” according to the IGSM, an independent intellectual center, whose activities are directed at working out initiatives and researches aimed at enhancing full democratic and radical social and economic transformation of the Russian society..
Practically, the all-round mistakes made by the analysts have cost local business and the domestic economy a lot. Particularly, these so-called experts displayed the most palpable cases of unprofessionalism in the first half of the year, when only a few analysts in the expert community were able to spot the clear signs of the unwrapping global economic crisis, according to IGSM.
“Some of these experts simply repeatedly asserted that Russia was not under threats of economic crisis, but the most absurd was some of the experts’ unshakeable belief that Russia could probably gain from the global economic instability,” IGSM Director Boris Kagarlitsky said. “However, a chunk of the blame also belonged to companies’ top managements, which also failed to correctly evaluate the clear writings on the wall regarding the current crisis. The end result is that at the end, everyone turned out to be the loser, and this is particularly true of those, who had been misled by the experts to believe that the crisis would be a boon both to their businesses and the national economy in general,” he added. “In summary, the huge loses accrued by companies today are largely due to the erroneousness in the experts’ evaluations and analytic opinions on the economic trends.”
Vasily Koltashov, the director of the IGSO’s Center for Economic Researches (CER), has divided these erroneous evaluations into miscalculations in general or macroeconomic and private, or industrial sector analysis. “In the first half 2008, we observed cases of poor evaluations of the trends in the global economy, with the worst cases of ‘scandalous incompetence’ being demonstrated by analysts closed to the government. The second half of the year finally brought clearness to the individual understanding of the situation, and when this finally happened, the resulting picture was a lot worse than expected,” he added.
According to the IGSM’s CER estimations, no expert was able to correctly forecast the record fall in prices for oil, the backbone of the Russian economy. “At the end of September, the IGSM’s CER warned that the prices for petroleum would drop to as low as $40-50 per barrel by the end of the year. But contrary to this bleak forecast, the Russian Finance Ministry declared that it still expected the oil prices to be in the range of $90 for barrel, a prognosis that was subscribed to by the majority of Russian analysts. It required almost two months before the IGSM’s forecast on oil prices was supported by other experts, especially foreign ones.
Not less noticeable were the glaring miscalculations by analysts specializing on the banking, real estate and equity markets. For instance, when the most reasonable decision was to offload stocks at their peak prices, most analysts recommended investors against selling, but instead to inject more additional capital into these equities. The IGSM’s CER warnings voiced in April about the imminent crash of the real estate market was not collaborated by other experts that have now been proved wrong by the current trends on the market. “Similarly, construction companies did not make use of the best situations that had existed in the industry to sell their houses and apartments at the highest prices, but instead preferred to wait till when the demand dropped by over 10 times,” IGSM noted. “Indeed, Russian analysts were able to correctly ‘forecast’ only what was going in the market at a particular time in 2008. For instance, if the prices for basic raw materials were growing on the global market, then the analysts predicted their further growth, and similarly, if there were declining trends, they also forecast a continuation of the negative trends,” IGSM added. “And, even in such primitive analysis, most of these so-called experts could not even ‘glance’ further into several months ahead.”
According to IGSM experts, the positive outlook forecasts by experts in the retail and services sectors were absolutely out of touch with the stark reality in which these industries eventually found themselves at the end of the year. “As a result of the incorrect understanding of both the private and general situations in the economy, most of the domestic companies did not only not benefit from these changes and prepare for these difficulties, but also suffered enormous losses,” IGSM experts said. “Financially, only a few companies were able to gain from the crisis, and these were mainly companies, which had relied mostly on opinions and situation evaluations of the so-called ‘underground’ experts,’ who traditionally do not use the so-called neoliberal economic theory in the practice,” they added. “By the way, it is the domination of this theory — both in our educational system and in economic analysis — that became the main reason for the ubiquitous miscalculations by leading experts in forecasting key economic trends in 2008,” they said. “This also puts into question the current system of teaching economy, which is based on mainly scientifically erroneous and practically useless views.”
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