The “big three” international credit rating agencies – Fitch, Standard & Poor’s and Moody’s forecast in 2016, the small growth of the Russian economy and a slowdown in inflation.
MOSCOW, 22 Dec. Veronica The Curls. The decisions of the big three international rating agencies — Fitch, Standard & Poor’s and Moody’s — in the past year, as never before, attracted attention of experts and market participants: for the first time for two of the three agencies lowered Russia’s sovereign rating below investment grade.
Against this background, Russian politicians have repeatedly stated political motivation and bias of these estimates. And the Central Bank of the Russian Federation in July announced the creation in Russia of a new independent rating Agency, which later became the name of the Analytical credit rating Agency (ACRA).
RIA Novosti interviewed representatives of the “big three”, and AKRA, and learned what they expect from the economy in the coming year.
Currently, only Fitch rates the rating of the Russian Federation as an investment: “BBB-” corresponds to the lowest rung of investment grade. S&P assesses at ‘ BB+’, which corresponds to a speculative category. The forecast for both agencies for the rating of the Russian Federation negative, which does not allow to speak about possibility of upgrading the rating in the nearest part of the review. The forecast Moody’s, which assesses the rating of the Russian Federation as a speculative “Ba1”, was upgraded to stable from negative in early December.
In anticipation of growth
Most economists agree that in 2016 the country expects little growth and disinflation. Thus, while maintaining oil prices at relatively low levels, the economy will continue to adapt to changing external conditions.
Official forecast Ministry for 2016 assumes GDP growth of 0.7%, inflation at the end of the year at 6.4%, the average annual price for oil of $ 50 per barrel mark Urals and average annual dollar exchange rate to 63.3 per ruble. Recently, the MAYOR has improved its forecast for the decline in GDP this year to minus 3.7 percent from minus 3.9%.
Chief economist Standard & Poor’s on Russia’s Tatyana Lysenko believes that the economic situation has stabilized. “Our forecast for next year GDP growth at 0.3%. Our base scenario assumes a modest recovery in oil prices compared with the current quotations, but in General, their preservation low to $ 55 per barrel on average in 2016, mark Brent”, she said.
In these circumstances, the Agency predicts a stabilisation of the exchange rate and reducing inflation to 6-7% by the end of 2016. “Nevertheless, the salary is likely to continue to fall in real terms, as nominal wages will grow more slowly than inflation. The budget for 2016 is expected to be fairly rigid. In these circumstances, consumption is likely to continue falling,” she said.
Senior Director of analytical group Fitch for sovereign ratings Charles Sevil also expects the next year of recovery growth of the Russian economy. “Fitch expects stabilization of the economy in 2016, with growth for the full year at around 0.5% and accelerate to 1.5% in 2017,” he says.
Thus, according to him, lower expectations for oil prices, weaker ruble and higher interest rates will restrain growth.
The head created in Russia ACRE Ekaterina Trofimova’m sure the economic downturn is nearing completion. “Next year, the probable stagnation of the economy, as significant new drivers of growth has not yet been formed. Perhaps a slight increase or decrease in volume of the economy, but it will not be significant,” she said.
“The process of gradual adaptation of the economy to changing external conditions will continue in the next year that will slow the renewed growth of the economy, at least until the second half of next year or 2017,” adds mills.
There are risks
At the same time, experts note that the low commodity prices, slower growth in China and geopolitical tensions in the coming year will continue to play the role of inhibiting factors for investors in the Russian economy.
Moody’s lead analyst for Russia Kristin Lindow believes that oil prices will remain at relatively low levels for several more years. “Given the decline in prices (oil — ed.), we expect that the growth of the Russian economy will be restrained, even when the economy starts to recover,” she said.
Tatyana Lysenko from S&P notes that many emerging markets are now in a difficult situation. They experience the simultaneous effects of multiple negative factors: the slowdown of the Chinese economy, falling commodity prices, expectation of higher interest rates in the United States.
“Foreign investors are now wary of investment in the assets of the emerging markets, including Russia. From a macroeconomic point of view, Russia has a number of advantages — the ability to adapt quickly enough to shocks, the continuing surplus of the current account, low debt. There are positive structural factors — for example, a high level of education of its population,” she notes.
However, many other structural factors — excessive state involvement in the economy, low competition, and geopolitical risks, according to Lysenko, make Russia less attractive to foreign investors.
The main risks, in her opinion, it is the drop in oil prices to significantly lower levels and increased geopolitical tensions.
The head of the ACRE mills agree that growth prospects are modest so far, partly due to the uncertain external economic environment. “Next year is unlikely, a substantial increase in oil prices that determine the profitability of the majority of Russian exports. However, the slowdown in China and continued low growth in Europe do not form preconditions for the “easy” acceleration of exports,” she says.
“On the domestic market will be in the process of adapting the consumer and banking sectors to the new financial conditions. Consumer activity will remain moderate, and the banks will continue to improve balance sheets. This process will continue until the end of the year, forming the basis for future growth,” — said Trofimov.
Mills is confident that the significant depreciation of the ruble makes Russian assets attractive to foreign investors, despite the small growth rate of the economy as a whole.
The potential for investment growth and S&P. “There is potential for growth — for companies falling wages in real terms is a reduction in costs, and profits of the corporate sector has shown significant growth this year”, — said Lysenko.
However, she continues, to restore investment, you need a number of other factors — the expectation of a recovery in demand for products more predictable macroeconomic environment, including exchange rate. The currency devaluation increased the competitiveness of Russian goods, Russian producers had a chance to take a seat on the domestic market and to increase exports, he said S&P.
“Growth will be driven by the cautious recovery in investment and a stabilization of private consumption,” said Sevil from Fitch.
What will happen to the rating?
Trofimova explains that when rating sovereign Issuer analysis agencies take into account a wide range of factors, from population dynamics to the financial situation of the banking sector and some major market participants.
In some cases, whereas long-term statistics (e.g. GDP), while in other and short term trends and events may affect the price movement of the credit rating (for example, changes in the volume of foreign exchange reserves).
Currently, she notes, the Agency assess the development of the economic situation as rather stable, as reflected in the latest rating action by Moody’s when the Agency had improved to stable the Outlook on the sovereign ratings of the Russian Federation.
“In my opinion, if a stable external macroeconomic background, there are real preconditions for the stabilisation of forecasts on sovereign ratings from other two agencies (S&P and Fitch) in 2016. The performance ratings up the scale will be the result of economic growth, structural reforms in the economy and medium-term stability in the financial sector”, — believes the economist.