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27 Nov, 2008 15:10

Russia can escape worst effects of downturn - Roubini

The economist who most accurately forecast the global financial crisis, Nouriel Roubini – or Doctor Doom as the press calls him, says Russia will recover fast.

RT's Mark Gay asked Dr Roubini whether Russia can expect to see the price for its all-important commodities rise again. 

“In the medium term you can be optimistic about commodities because once we get out of these severe economic crises the demand growth is going to continue over time and many countries like China, India and others are industrializing, urbanizing, so the demand for energy is going to increase while the supply is going to grow maybe more slowly. So in the medium term you can be bullish about commodities but in the short run if next year there is going to be a severe recession in the US, in Europe in advanced economies and also in emerging markets there is going to be weakness then every thing else is going to lead to further falls in commodity prices. So it’s going to be negative for commodity exporters at least in the next 12 months.”

Roubini said he expects emerging markets to escape the deflation that he says will affect the United States:

“It depends on the policies these emerging markets are going to follow. If their policies will be of further monetary easing when there is double digit inflation then the inflation rate in these emerging markets is going to remain quite high. It may become even higher. But certainly the global economy overall will be in a situation in which the supply of goods will exceed aggregate demand, where commodity prices are already falling so certainly inflation rates even in emerging market economies next year should be starting to fall quite sharply. They are not going to have deflation but they are going to fall from the double digit levels of the previous year.”

RT:  Is it time for the interests of the US and the US dollar to play a lower role and be balanced by the interests of other countries?

“In the short run there is a strengthening of the US dollar because of this flight to safety people pulling money out of emerging markets unraveling of the carry trade also the realization that the US is in trouble, the rest of the world is in trouble. However over time the US is going to face a severe recession, a severe financial crisis, very large budget deficits, possibly over $1 trillion next year, still very large current account deficits so over a medium term basis that I would expect dollar weakness over time.”

“Answering the second question, of course the relative importance of different currencies changes over time. If the U.S. does not clean up its financial system, and its imbalances then the dollar may weaken over time and if this weakening keeps on occurring at some point other investors are going to decide to invest more into the euro or other currencies and there will be a relative decline in the value of the dollar and of the dollar as a major reserve currency. So reserve currencies remain a reserve currency so long as the economic and financial fundamentals of the country remain strong. There is a risk of a decline, gradually over time, it's not going to happen overnight, of the US dollar as a major reserve currency. It's going to take a long time.”

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