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21.01.2015 20:52 IMF cuts global economic growth forecasts

The International Monetary Fund has cut its growth forecasts for the global economy on the back of a slowdown in China, looming recession in Russia and continuing weakness in the eurozone. The Washington-based fund warns that the boost from lower oil prices is being outweighed by a host of negative factors and it now expects global growth to edge up only slightly from 3.3% last year to 3.5% this year. That is down from a 3.8% forecast for 2015 in its World Economic Outlook published in October. It forecasts growth picking up only slightly next year and cut its 2016 forecasts from 4% to 3.7%. The gloomier outlook comes as business people and world leaders gather in the Swiss mountain resort of Davos for this year`s World Economic Forum meeting. The IMF has plenty for policymakers at the summit to consider, including pleas to boost growth with more infrastructure projects, keeping interest rates low to ward off deflation and making the most of cheaper oil to shake up energy subsidies. The US is the only major economy where the IMF has raised growth forecasts for the next two years. It sees a boost from lower oil prices and strong domestic demand helping the US economy to grow 3.6% this year, up markedly from a 3.1% forecast made in October. Worldwide, the net benefit of the plunge in oil prices, which have more than halved since last June, has been more than offset by adverse factors, the IMF said. It cites weaker prospects for China, Russia, the eurozone and Japan as well as a slowdown in some major oil exporters because of the sharp drop in crude prices.

17.01.2015 19:52 Why the US will power the world economy in 2015?

The United States is back, and ready to drive global growth in 2015. After long struggling to claw its way out of the Great Recession, the world`s biggest economy is on an extended win streak that is edging it closer to full health. But the new year doesn`t look quite so bright in other major countries. China is slowing as it transitions from investment to consumption. Japan has slid into a recession. Russia appears headed for one. Europe is barely growing. And the U.S.? Six years after its financial system nearly sank and nearly that long since the recession ended, the United States is expected to grow in 2015 at its fastest pace in a decade. Its expansion from July through September a 5 percent annual rate was the swiftest for any quarter since 2003. That pace will likely ease a bit. Still, the economy is expected to expand 3.1 percent next year, according to a survey by the National Association for Business Economics. It would be the first year of 3 percent growth since 2005. The acceleration of U.S. growth is a key reason the global economy is also expected to grow faster, at about 3 percent, up from 2.5 percent in 2014, according to economists at JPMorgan Chase and IHS Global Insight.

16.01.2015 18:39 EU, BRICS woes offset oil`s global GDP boost

Plunging oil prices are giving a bump to consumer and business spending around the world just not enough to increase global growth forecasts. A darkening outlook in emerging markets including China, Russia and Brazil, and geopolitical risks such as Greece`s possible exit from the euro are overshadowing the benefits from lower energy costs. The median estimate for 2015 world expansion from economists surveyed by Bloomberg News has been unchanged since October, when it fell to 3.5 percent from 3.6 percent. People are cautious in a world where they see other risks skewed to the downside, said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. There`s still a question mark out there. Economists` reluctance to boost estimates underscores the fragility of global growth after four straight years of below-forecast expansion. JPMorgan is a case in point: It estimates that sustained $60-a-barrel crude oil prices will add 0.5 percent to global gross domestic product, yet its Jan. 2 world expansion forecast of 2.9 percent for 2015 is down from a 3.3 percent estimate in July. The U.S., with a 3.2 percent expansion estimate, is the only one among the world`s 10 biggest economies that JPMorgan now sees growing more quickly than expected in July. The bank projects emerging markets will grow 3.9 percent this year, down from its July forecast of 4.9 percent, reflecting markdowns for nations including Russia, Brazil and India.

15.01.2015 19:36 Why cheap gas prices are ruining Russia`s economy?

Cheap gasoline may be a blessing for drivers and a boon to the US economy, but it is wreaking havoc with oil-producing countries around the world. Perhaps none has struggled as much as Russia, where the fall in oil prices has set off a cascade of economic crises and left the country flirting with a prolonged recession. One way to understand the current situation, and Russia`s uncertain future, is to take it one crisis at a time. At this point, Russia doesn`t have a lot of good options. It can hope that the price of oil rebounds. It can use some of the dollars it keeps in reserve to buy up rubles and perhaps stabilize the currency. It could even impose more dramatic capital controls to prevent Russians from trading their rubles into other currencies. Perhaps most dramatic, and most unlikely, Russia could appeal to the International Monetary Fund for assistance. After all, that`s what the IMF is for, to help countries escape from a downward economic spiral. But there are two reason to think an international bailout is extremely unlikely. First, the IMF would have to agree to help a government still under intense sanctions for its annexation of Crimea. Seocnd, Putin would have to accept the terms of an IMF leash.

12.01.2015 20:00 1998 and 2014: Russian crisis in perspective

Russian banks have warned against hysterically jumping to the conclusion that the current ruble crisis will follow the trajectory of 1998, when the country was forced to default. The ruble`s spectacular 22 percent plunge on Monday and Tuesday has prompted investors to liken the crisis to 1998, when the ruble lost 27 percent on August 17, 1998. However, these days, Russia`s balance sheet is strong enough to weather the ruble sell-off. On Tuesday, the ruble grazed the 80 ruble to the US dollar benchmark. In 1998, over a six month period, the currency lost more than 70 percent of its value. Inflation skyrocketed, banks and enterprises across the country collapsed, and Russians were left jobless. Russia`s GDP took 7 quarters to recover to pre-crisis levels after 1998. Black Tuesday of 2014, as it`s called, has brought back many similar memories, but the situation has changed greatly, according to experts.

06.01.2015 19:58 Russia`s Gov`t Wrong Again On Ruble

Russia`s Minister of Economic Development, Alexey Ulyukayev, said two weeks ago that the ruble would be less volatile in January. On Monday Jan 5th, the first active trading day of the year following the long New Year`s holiday in the U.S., the Russian currency weakened back into the 60s. The ruble has lost another 10 basis points against the dollar since Ulyukayev said his country`s currency would soon stabilize, following a record-breaking sell-off last month that took it over 70 to 1 in intraday trade. The ruble settled at 61.60 on the heels of oil prices falling below $50 a barrel during Monday`s futures trading. Russia`s economy is heavily linked to global oil markets as it is one of the world`s largest energy exporters. During the last few months, oil prices have declined sharply from above $110 per barrel in early 2014 to the current $55 price, amid market oversupply. The Russian state media has taken to blaming U.S. shale oil development for the reduction in price. However, lackluster demand from China and Europe, two of the world`s most important energy markets, and Saudi Arabia`s refusal to cut output have also contributed to a nearly 50% drop in oil prices. Russia`s currency faces dual headwinds of geopolitics and oil market fundamentals.

29.12.2014 19:42 Russian ruble drops 7 percent as economy shrinks

The Russian currency extended its losses on Monday Dec 29th after a report showed the economy has started shrinking in annual terms for the first time since 2009 as the country is buffeted by falling oil prices and Western sanctions. Meanwhile, the government, which has been scrambling to support the ruble and the economy, announced fresh steps to keep the banks afloat. The ruble has been one of the world`s worst performing currencies this year and was down another 5 percent on Monday, trading at 56 rubles per dollar in early afternoon in Moscow, wiping off some of the gains it made last week. The fall came as the Economic Development Ministry issued a report showing the economy shrank by 0.5 percent in November compared with a year earlier. The ministry attributed the year-on-year decline in the economy, Russia`s first in five years, to a sharp drop in manufacturing and investment. The economy has been buffeted by a combination of lower prices for the country`s crucial oil exports and the impact of Western sanctions.

25.12.2014 08:08 How Russia can recover from its economic and strategic decline?

As 2014 began, few in Russia could have imagined how far its fortunes would fall by year`s end. Russia is entering strategic decline. It has options for recovery, but as yet shows little sign of exercising them. This year Russia saw setbacks on three main fronts: economics, political and social, and foreign policy. A severe financial crisis has hit Russia, and next year its economy may slide into a deep and persistent recession. Oil prices have plunged by about two-fifths, yet Russia depends on oil and gas exports for the majority of its state budget. Stock prices relative to earnings are the lowest of any emerging market. Western sanctions in response to aggression in eastern Ukraine have cut off most financing from the West, yet Russians must repay or roll over $150 billion in loans by the end of 2015. These factors and the temporary detention of a well-known business leader have frightened investors. Further, corruption and state economic interference stifle private initiative, and bloated state enterprises such as Rosneft are subsidized. Without major changes, the economy will not recover in anything like the two years President Vladimir Putin predicted last week. He offered no strategy for recovery. Instead, he is avoiding liberalizing reforms and hoping that oil prices will rise and reserve funds will see Russia through.

24.12.2014 14:42 Hello 2015: Russian equities time to buy?

Russian asset prices have taken a severe battering this year and are now ranked as among the cheapest in the world. The obvious question many are now asking is, is this a good time to buy or is there more pain to come which might lead to even lower prices and valuations in 2015? Apart from the cheap valuations, the reason why investors are asking that question now is because, during Russia`s previous two recent crises, in 1998/99 and 2008/09, we had similar situations where the reasons to continue avoiding the country were overwhelming but it was, nevertheless, exactly the right time to buy. In October 1998 the RTS Index hit a low of 38.5 and then rose to a peak of 2,500 in May 2008. In late January 2009 the Index closed at just under 500 but three months later it reached 1,000. Recently the RTS Index reached 700, at which level it was down 50 per cent since the start of the year while the MSCI Emerging Markets Index was just about flat. So, is this a third opportunity or is it different this time?

23.12.2014 13:42 Why Russia`s crisis could have a ripple effect?

The "western world" could not have designed a better package of sanctions to put pressure on Russia. The combination of sanctions (perhaps there are more to come) and declining oil prices has had a significant impact on Russia. As one quite respected economics consulting group has put it, "There is now little doubt that Russia is heading for a deep recession." There can be also little question that Russia depends on oil. We learned that vividly in 1998 when the price of oil declined 58 percent, Russian oil exports declined and, in time, Russia was unable to make payments on its sovereign debt. Conditions have not changed. Exports constitute 28 percent of Russia`s nominal GDP; oil exports equal 39 percent of its total exports. A decline in the price of oil from $108.66 (the 2013 average price for Brent crude) to $60 (the current price) along with sanctions minimally has caused the economy of Russia to slow. This is not something that has happened overnight. The consensus forecast for the Russian economy for 2015 has been declining each month since January this year from 3.0 percent to -0.2 percent and is likely to decline further. Based upon the experience of 1997, Russia is pulling out all stops. It has raised interest rates and is on the edge of considering restrictions on capital flows. The ruble and the economy are sinking rapidly. The real question is "Will the crisis in Russia be transmitted to Europe and perhaps the U.S.?"


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