Bursts of volatility in global markets that the Russian economy faced in the first quarter, may be repeated due to the global economic growth and continuing imbalance in the oil market, said first Deputy Chairman of the Bank of Russia Ksenia Yudaeva at a press conference for the presentation of the “financial stability Review” on Tuesday, may 31.
Russia is a key global factor is the situation in China, said Yudaeva. First, the pace and character of China’s economic growth through demand affect the dynamics of world prices for oil and metals; and second, strengthened economic ties between the two countries.
“When the Russian and Chinese economies will only increase: approximately 8% of our exports go to China, and 17-19% of our import comes from China. With the increasing size of the Chinese economy, with the growth of trade between our countries relationship increase. Enhanced the mutual influence of the economies in the first place, of course, influence of Chinese on the Russian”, — she noted. The process, according to Yudayeva, over time, will only increase.
Yudaeva previously said that if the slowdown in China’s GDP by one percentage point the dynamics of the development of Russia’s economy worsens by half a percentage point. According to her, any fluctuations in the Chinese economy will inevitably affect the development of the global economy. “We in Central Bank needs to constantly monitor the situation and take measures to preserve financial stability,” added Yudaeva. In the first quarter of 2016, China’s GDP grew at an annual rate of 6.7 percent (to $2.44 trillion), which was the worst result in seven years (in the first quarter of 2009, the GDP growth amounted to 6.2%), Russia’s GDP in the same period decreased by 1.4% year on year.
Describing the features of the development of the Chinese economy, Yudaeva noted that the country is in the process of changing the economic growth model that “carries short-term risks, but medium-term yields opportunities.” Slower growth in traditional sectors and growing demand for commodities leads to a decrease in prices for main Russian exports, and this risk can already be considered realized, she explained.
The transition to a model of economic growth based on consumer demand, creates new opportunities for diversification of Russian exports. “It requires time and some work on linkages and the adjustment of the output channels for the Chinese and overall Asian markets with our own products,” added Yudaeva.
The process of transition to a new economic model is accompanied by the emergence of risks in economic policy. “In August last year, the problems of Chinese financial market spread throughout the global economy,” she said.
For three weeks from 8 July, the Shanghai stock market fell by 30%. Then, after a temporary stabilization the collapse of the Chinese markets resumed. Because of the fall of the index Committee of the state Council of China for the control and management of state property has temporarily banned state-owned companies to sell their shares on the stock exchanges. The people’s Bank of China announced the increase in funds and securities of financial corporations to ensure the liquidity of the securities market participants gradually began to reduce the rate of the national currency against the dollar. In the beginning of the financial crisis, the authorities planned to provide support for the exchange activity of $81 billion, but allocated $200 billion, but on 24 August suspended financial investment due to inefficiency.
“We see that to some extent the Chinese authorities learned a lesson and try to manage the situation more carefully and sensibly without serious unclear market changes. But markets are nervous creatures, may give rise to some volatility in connection with the lack of understanding of the markets policy of the authorities”, — said Yudaeva.
Another significant factor for the Russian financial system is the fed tightening, said Yudaeva. But the expected loss from the fed’s rate hike and the rising cost of dollar borrowing for Russia is lower than in many developing countries, as in the last two years there has been a significant reduction in external debt of Russian companies and banks.
Finally, a potential risk for financial stability can become uneven distribution of the surplus liquidity of banks, which may lead to the emergence of bubbles in the credit market. “Against the background of non-uniformity of the inflow part of the banks may continue to experience demand for refinancing by the Central Bank, while the other part will experience excess liquidity. In such a situation may occur the risk of formation of bubbles in the financial market, as happened in 2011-2012 in the market for unsecured lending,” she explained, noting that the Bank of Russia is closely monitoring the situation.