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THE escalation of the situation between Russia and Ukraine over the weekend plus an aggressive central bank hike on Monday morning is only part of full story about Russia, as the country's purchasing managers' index (PMI) is below 50.0 for the fourth month running (below 50 represents contraction in the manufacturing sector‚ while a
reading of over 50 denotes expansion).
I visited Russia less than a month ago and I left concerned. Not since 2007/08 had I received so many “crisis” questions from both investors, clients and media. It was all about the weak rouble, the emerging markets crisis, and the bad shape Russia was in.
Let me stress that Russia is one of my favourite travel destinations, despite the country making me endure -15 degrees Celsius last time around.
Russia to me is politically, economically and strategically cornered. I will make no big political statement on Ukraine et al, as I think the matter speaks for itself, but let me remind you of Georgia – it led to one of the biggest sell-offs in history for the Russian stock market (coinciding with the financial crisis). According to several analyses, Monday morning has a parallel in that the Olympics were also happening at or around the time.
In 2008 President Vladimir Putin was out of the country attending the opening of the Beijing Olympics; this time he used the end of Sochi games to escalate the crisis - the point is the attempt to use the world media focus on the Olympics as a way to get away with something harsh.
Russia’s economy has moved from a 6-8% current account surplus pre-crisis to this or next year going into a deficit despite high energy prices. Growth in 2013 was less than 1.3% as opposed to government's anticipated 3.0%. This year will see Russia in recession, according to my economic models, unless real reform takes root.
The new central bank governor has been brave and steered a tight monetary policy, which I interpret as being a policy choice of a “small crisis now, rather than a big one later” as unsecured lending grew out of control. The 83 regions run a $100bn deficit, without Moscow really having control over the purse and with a political leadership which spends more money than it earns.
The Russia model is being challenged – Russia has all the human and mineral resources to be a superpower, but economic reforms need to start now.
Like in 1989, the Russia bear is tired and we risk Ukraine becoming a new Berlin Wall, but this time the wall is going up not down – and let's remind ourselves that we will all be losers in that game.
Europe needs Russia’s energy, Russia needs Europe's engineers and business people, but right now we are a part as we have been since 1989 – ironic as we are at the 25-year anniversary of that Berlin wall falling down.
In conclusion, Russia and Ukraine are fast becoming a “reverse” Berlin Wall. Economically and politically we will all lose. This will increase volatility and the stock market will be under pressure as we all remember the 1998 devaluation.
Any major crisis has a catalyst – I think Russia/Ukraine is one. We have an even bigger crisis though, that of political leadership, and that’s what really concerns me. The rouble will continue to weaken, the stock market globally could deleverage.
- Fin24
* Steen Jakobsen is Saxo Bank’s chief economist. Opinions expressed are his own.
I visited Russia less than a month ago and I left concerned. Not since 2007/08 had I received so many “crisis” questions from both investors, clients and media. It was all about the weak rouble, the emerging markets crisis, and the bad shape Russia was in.
Let me stress that Russia is one of my favourite travel destinations, despite the country making me endure -15 degrees Celsius last time around.
Russia to me is politically, economically and strategically cornered. I will make no big political statement on Ukraine et al, as I think the matter speaks for itself, but let me remind you of Georgia – it led to one of the biggest sell-offs in history for the Russian stock market (coinciding with the financial crisis). According to several analyses, Monday morning has a parallel in that the Olympics were also happening at or around the time.
In 2008 President Vladimir Putin was out of the country attending the opening of the Beijing Olympics; this time he used the end of Sochi games to escalate the crisis - the point is the attempt to use the world media focus on the Olympics as a way to get away with something harsh.
Russia’s economy has moved from a 6-8% current account surplus pre-crisis to this or next year going into a deficit despite high energy prices. Growth in 2013 was less than 1.3% as opposed to government's anticipated 3.0%. This year will see Russia in recession, according to my economic models, unless real reform takes root.
The new central bank governor has been brave and steered a tight monetary policy, which I interpret as being a policy choice of a “small crisis now, rather than a big one later” as unsecured lending grew out of control. The 83 regions run a $100bn deficit, without Moscow really having control over the purse and with a political leadership which spends more money than it earns.
The Russia model is being challenged – Russia has all the human and mineral resources to be a superpower, but economic reforms need to start now.
Like in 1989, the Russia bear is tired and we risk Ukraine becoming a new Berlin Wall, but this time the wall is going up not down – and let's remind ourselves that we will all be losers in that game.
Europe needs Russia’s energy, Russia needs Europe's engineers and business people, but right now we are a part as we have been since 1989 – ironic as we are at the 25-year anniversary of that Berlin wall falling down.
In conclusion, Russia and Ukraine are fast becoming a “reverse” Berlin Wall. Economically and politically we will all lose. This will increase volatility and the stock market will be under pressure as we all remember the 1998 devaluation.
Any major crisis has a catalyst – I think Russia/Ukraine is one. We have an even bigger crisis though, that of political leadership, and that’s what really concerns me. The rouble will continue to weaken, the stock market globally could deleverage.
- Fin24
* Steen Jakobsen is Saxo Bank’s chief economist. Opinions expressed are his own.
