International experts are convinced that the near-term prospects of the Russian economy depend heavily on whether the USA expand the anti-Russian sanctions. They say the worst-case scenario is a 2.5% GDP drop.
All in all, the experts say there are several possible scenarios for the Russian economy. The worst-case scenario implies another round of anti-Russian sanctions, which is expected to make the Russian GDP shrink by 2,5% in 2019. If that's the case, the average USDRUB exchange rate is expected to reach 83 rubles per dollar. Basically, there are 3 scenarios - basic, alternative, and alternative with financial stress. All of them imply a new round of sanctions expected in November.
They say this is the first time when the expension of sanctions are taken into account when making a macroeconomic forecast. Previously, the basic scenario used to imply the preservation of the current sanctions. Since another round of sanction now looks a really likely scenario, the experts decided to use it as the basis fo r all 3 scenarios.
The thing is that the new round of sanctions currently discussed in the U.S. Congress may eventually include freezing the U.S. bank accounts of government-owned Russian banks and institutions. This threat alone may force international investors into reducing their exposure to Russian T-bonds by at least 8-10%.
US-China Trade War May Affect Russia
There is another key thing taken into account in all of the 3 scenarios. This is the current trade war going on between the world's 2 biggest economies - the United States and China. To some extent, the trade war may eventually affect the Russian export. This is the biggest uncontrolled risk for the Russian economy, and vent the entire global economy.
Another major factor to keep in mind is the situation in the commodity market. Any change in the supply and demand may lead to lower oil prices, which will eventually affect the Russian export, which, in its turn, will affect the Russian GDP. If crude oil drops below $40/b over the next 12-18 months, this will definitely result in much poorer economic performance in Russia.
In the meantime, Brent oil is trading well over 77 dollars per barrel. this means that oil prices keep on going down after peaking at $82/b in September.
As we already mentioned, the most pessimistic scenario implies a GDP drop by 2,5% over the course of the next year. At the same time, according to the scenario, the inflation rate is expected to hit 8%, therefore outpacing the central bank's expectations by 100%. In this case, the USDRUB may well exceed 83-85 rubles per dollar. However, they say the central bank will eventually manage to stabilize the situation by raising the key interest rate. By the way, the worst-case scenario takes into account a possible economic recession in the USA, which is predicted by a growing number of international experts. The shocking scenario implies a possible debt crisis in China and the EU.
A for the basic scenario, it implies a moderate GDP increase of 1.4% in 2019, with the average USDRUB exchange rate equal to 64 rubles per dollar.
