Moscow News
www.mnweekly.ru
November 21, 2008
Glass half full or half empty?
By Marina Pustilnik
Today, I read two opposing forecasts on the development of the financial crisis and how it will affect Russia. One was published by the World Bank - it was full of cautious optimism and conservative praise for the Russian government. The other was published by Raiffaisen Bank and warned of recession.
The World Bank halved its forecast for Russian economic growth next year, but still forecasted growth of 3 percent as compared with global growth forecast of just 0.93 percent. The bank also said current macroeconomic fundamentals pointed to the ruble's weakening in short term but added that gold and foreign currency reserves should provide an adequate cushion for the economy even if they fell further to around $350 billion. Moreover, the World Bank went as far as to say: "The government's policy response so far... helped limit the impact." It is so unlike the usual reprimands from this global credit organization, that it seems like a good example of the "I'll scratch your back if you scratch mine" approach. An additional point of interest is that the World Bank bases its next-year forecast on the $74.5 per barrel price of oil - a figure that the other predictions are afraid to even dream of. Does the World Bank know something nobody else does about oil prices or is it being too optimistic overall?
The document published by the Raiffaisen Bank, which actively operates on the Russian market, is full of pessimism. The research note forecasts a recession and fall in production by as much as 30 percent in some industries. Oil production will fall by 10 percent in the first half of 2009, metallurgic production - by 30 percent, construction volumes - by 15 percent, the analysts say. Overall, they forecast negative GDP growth of 1.8 percent in the first six months of 2009 as compared with the same period in 2008. Analysts from other investment organizations agree with Raiffaisen on some counts and disagree on others.
What does it tell us? It tells me that nobody really understands what is happening. Nobody can tell you whether the glass is half-full or half-empty. The only sure information is that there is a glass and there is some water. There is the global economy, there is the financial crisis, there are low oil and other commodity prices, and there are things like a shortage of credit funds, a weakening ruble and massive lay-offs ahead. But nobody can give you a 100 percent correct answer. Nobody can predict how the parts of this equation will add up, so the point of these exercises in forecasting seems purely academic. It will be very interesting, of course, to sit down a year from now and compare the forecasts with real figures to see who was right: optimists or pessimists and how much economic formulas have in common with real life. But from a practical point of view, in the time of crisis such forecasts are not only unnecessary, they are harmful. So much of the crisis is already virtual - in that every slightest detail gets a full-blown coverage and discussion - and people who are yet to feel its impact are already prepared for the worst, because that's what they keep hearing: "There will be massive layoffs, many companies will shut down, life will be hard." Adding constant talk of recession to the mixture doesn't help much to keep up the spirits. Everybody knows it's going to be a hard year ahead, stop talking about it already. Stop reading about it too - knowing exactly how hard life is going to be is not going to help you prepare for it or deal with it better.