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Topic: Economy
Region: Russia
Type: Member Comments
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Yaroslav Lissovolik

Chief Managing Director of Sberbank, Head of analytical Department of global markets Sberbank Investment Research, RIAC Member

For Russia the global downturn will likely involve greater focus on short-term exigencies at the expense of longer-term goals, writes Valdai Club Programme Director Yaroslav Lissovolik. As was the case during the 2008-2009 crisis this may involve changes in the composition of fiscal spending away from prioritizing infrastructure development towards greater emphasis on social outlays.

For Russia the global downturn will likely involve greater focus on short-term exigencies at the expense of longer-term goals, writes Valdai Club Programme Director Yaroslav Lissovolik. As was the case during the 2008-2009 crisis this may involve changes in the composition of fiscal spending away from prioritizing infrastructure development towards greater emphasis on social outlays.

The 2008-2009 may have been severe, but not as impactful with respect to transforming the longer-term contours of the world’s economic system. This time may be different, as despite the unprecedented anti-crisis measures the scale of the decline in economic activity this year is set to overshadow the depths of the fall observed more than a decade ago.

Notwithstanding the relatively recent periods of volatility and several waves of crises in the past decade, the world economy this time around was caught off-guard. For markets the current crisis will likely involve a re-assessment of global risks, among which those of resurgent epidemics episodes are complemented by other global vulnerabilities such as breaches of cybersecurity, global warming or technogenic disasters in the energy sector. At this stage there are no secure global mechanisms of cross-country coordination that would significantly moderate these risks. A greater risk premium attached to such vulnerabilities may be warranted, which implies that the recovery path for the markets is likely to be more extended and less emphatic than it has been in the 2008-2009 crisis episode.

There is also the question about the second- and third-round effects of the current economic slowdown and the ensuing stimulus. The scale of the fiscal stimulus packages will be reflected in the widening of the fiscal deficits in countries where the pre-crisis fiscal position has already been vulnerable whether in terms of debt levels (Italy) or the size of the fiscal gap. A further concern will be the fragilities at the corporate level, including in the SME sector, as well as sectors such as tourism and transportation that were disproportionately affected by the crisis. These shocks sustained by corporate balance sheets may eventually be coved via financial injections from the national budgets. Still another dimension will be the state of the banking sector on the back of rising NPLs in the corporate and household segments.

The world economy will need to be transformed in ways that address some of the gaps that were revealed by the current crisis, most notably the undersupply of healthcare services and nursing shortages.

According to the estimates of the World Health Organization (WHO) as reflected in the Dublin declaration the global shortfall of healthcare professionals could reach up to 18 million within the next decade. Similar gaps are observed in the sphere of cybersecurity – according to a recent survey of IT decision makers by the Centre for Strategic and International Studies, “82% of employers state they have a shortage of cybersecurity skills and 71% say this causes direct and measurable damage to their organizations”.

Furthermore, consumer patterns are likely to be transformed in ways that involve a greater share of online services, more demand concentrated in online education and health care as well as delivery services. Financial services will likely gravitate even more to cashless transactions. Insurance services will also accord greater priority to monitoring and covering the risks of health hazards.

In terms of economic policy and its coordination across countries one of the changes in the system may be the creation of a pre-established rules-based anti-crisis mechanism that involves coordinated measures in the fiscal and monetary policy space. The absence of such a mechanism during the onset of the current crisis resulted in a weak aggregate response of the global economy to an unprecedented slowdown, with ad hoc and haphazard measures taken individually by countries without due coordination, most notably with respect to fiscal stimulus measures. Going forward it will be important for such an anti-crisis mechanism to be reinforced by coordination between national and regional institutions, including regional development banks and regional financing arrangements (RFAs), whose resources have already outstripped those of the global institutions such as the World Bank and the IMF.

Another important development is the transformation of macroeconomic policy to include non-orthodox measures to stimulate depressed demand. In particular the use of broad-based transfers to the population in the US represents an effort to raise the impact of fiscal outlays in boosting demand amid unprecedented crisis conditions that render the effectiveness of other types of spending relatively low. The significant fiscal and monetary loosening in the largest economies of the world will likely also have inflationary implications, populism is likely to be given a further boost, while structural reforms are likely to be on the back-burner. The current crisis is likely to modify countries’ approaches to the use of economic policy rules, with fiscal rules likely to be modified/relaxed to allow for the possibility of economic shocks and sudden stops as observed in the current crisis episode.

For Russia the global downturn will likely involve greater focus on short-term exigencies at the expense of longer-term goals. As was the case during the 2008-2009 crisis this may involve changes in the composition of fiscal spending away from prioritizing infrastructure development towards greater emphasis on social outlays. In line with global trends the financing of items such as healthcare is likely to be given a boost, particularly given that healthcare is a prominent part of Russia’s national projects. Any uplift in Russia’s markets and the economy will hinge upon the dynamics in the oil price – in this respect a speedy return back to price levels observed in the beginning of this year will be difficult to attain even despite the OPEC+ deal in view of the scale of excess supply amid weak demand and disruption in supply coordination.


Source: Valdai








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