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25 Jan, 2008 00:37

Economic report paints a bleak picture

Online investment firm Saxo Bank has published its ‘Outrageous Outlook for 2008', a report which looks at what could go wrong with the global economy this year.

Worst-case scenario

According to the grimmest scenario, a combination of inflation and stagnant economy will produce global stagflation. Oil prices will soar to $US 175 per barrel because of shrinking supplies and the Chinese stock market will fall by 40 per cent.

“Energy consumption is going to grow a lot, and therefore the prices will rise. For example, Chinese don’t want to eat rice – they want meat. Therefore agricultural products will rise in price, and their price may even double,” said David Carsbol, head of strategy at Saxo Bank.

Even the best-performing emerging markets, with Russia at the head, won’t save the world from recession.

Realistic scenario

Still there’s no reason for panic as the most likely outcome is optimistic.

Speaking about the U.S. recession and its possible impact on Russia, analysts believe it will continue to attract investment.

“I would expect, despite some problems in the global economy, Russia to become again a net borrower from the rest of the world,” said Anton Struchnevsky, Troika Dialog analyst.

Some banks also seem to be on the safe side.

“Some kinds of base metals and most of these state-owned banks, like VTB or Sberbank in particular, may be seen as a safe place,” said Vladimir Osakovsky, UniCredit Aton analyst.

But not all Russian banks are so secure. There are more than 1,200 banks in Russia with many having significant debts.

On the other hand, Russia’s banking regulators are thought to welcome consolidation in the sector.

That way Russia may avoid some of the pitfalls that have plagued U.S. banks.
“You should not lend money to persons that can’t pay back, those who don’t have a job, any trustworthy credit history, and who is buying a house they cannot afford,” comments David Carsbol.

So the author of outrageous predictions has a less colourful and more stable assessment of the Russian economy than the title suggests.