The Russian economy has been in a "sanctions storm" for six months, having embarked on a large-scale structural restructuring. The CEO told RIA Novosti in an interview about how the process of adaptation to the new "rules of the game" is going, when it will begin its recovery, what will happen to the ruble exchange rate in the fall, how prices will rise in the country by the end of the year, how housing affordability is changing in Russia and whether the "new" currencies will be able to gain popularity among depositors. Analytical Credit Rating Agency (ACRA) Mikhail Sukhov. Anastasia Saprykina was talking.
– The Russian economy is now under pressure from unprecedented sanctions. How do you assess the situation in the economy today and what are the main problem points you see?– It's almost six months since we are in a changed situation.
Globally, the estimates are now better than the first ones in March. The laws of physics have started working in the economy: the force of resistance is equal to the force of pressure. The effectiveness of resistance is largely related to the fundamental balance of finance. The debt, public and corporate, is relatively small, it can be increased in reasonable amounts painlessly. With the current assessment of public debt to GDP of less than 20% on the horizon of three to five years, there are no critical restrictions on managing its value from the side of accumulated debt.
The ruble, in the end, did not fall, it even got stronger. Many experts believe that this hinders the development of the economy. But I do not agree with this, because the sanctions pressure and technological restrictions have nothing to do with the ruble exchange rate. Prices for the main export goods have increased, it turns out that the discomfort of exporters is compensated by an increase in the price component of revenue due to external prices. Therefore, I would say this: now the balance between the negative and the positive due to the strong ruble is closer to the positive, because it restrains the growth of the cost of prices for imported goods and even helps to reduce the rate of inflation.
Another thing is that according to all estimates, the recession will last not only this year, but also next year. It is much easier to rebuild what has already been reduced and is now moving to development. Most likely, at the same time we will observe a decline in some industries and the need for investment in other industries: the structure of consumption will change in hundreds of directions, which will also require large investments. At the same time, there are only two sources of financing: the state and banks. Opportunities to attract the finances of the population have greatly decreased, and there are no non-residents.
– How many quarters can the decline of the Russian economy last?– The decline will go beyond the current year for sure.
According to the optimistic scenario, it will continue until the summer of next year, and according to the more pessimistic scenario – until the end of 2023. The rate of decline will gradually decrease, although it will still be a long story, coupled with a change in the "rules of the game". For example, there is now a moratorium on bankruptcy, this is a certain protective factor for enterprises. But it cannot continue indefinitely, its fate will obviously be determined in the coming months. As a result, credit risks will begin to be realized, we do not expect that it will be possible to support all affected industries. The state will combine measures to preserve production with employment support.
– When will the deepest fall be? And what are your expectations in general for the rate of decline in Russia's GDP at the end of this year and next year?– At the end of 2022 – the beginning of 2023, if we compare with 2021.
And this year we are still predicting a decline of 7-7.5%, next year, depending on external factors and internal transformations – 0.5-2%.– And when and how will the economy begin to recover?
– If we take a return to the real values of 2021, then in 2023, starting in the summer.
The most difficult thing now is to say what will happen in three or four years, how quickly the economy will continue to recover. Following the current sanctions, we should expect a wave of reduction in the consumption of Russian oil on the foreign market, its scale is not yet clear, taking into account the possible change in the geography of exports. In addition, now enterprises use stocks for production, but when they run out, they will need to be compensated. So it is unlikely that we will witness rapid growth in 2024, at best 1-1.5%. – Speaking of public debt, what level of GDP do you expect in the coming years?
And in your opinion, can the Ministry of Finance enter the market already in 2022?– The Ministry of Finance is not inclined to borrow at expensive rates, so it is unlikely to come out at double-digit rates.
Now the Ministry of Finance has other opportunities – as a result of the revision of the budget rule, opportunities for investment from the NWF can be expanded. Therefore, it is not necessary for him to enter the debt market. More confidently, we can say that the Ministry of Finance will enter the domestic borrowing market next year, when OFZ rates will be about 6%. The volume of public debt, I think, may grow to about 25% of GDP by mid–2023, and to 30-35% by the end of 2024. – You mentioned two sources of financing for the restructuring of the economy – the state and banks.
Do you think the state can issue infrastructure bonds for the population for major projects?–
I do not rule out this kind of initiative. But, to be honest, I see that after all the events, the investment opportunities of the population in the stock market have become much lower and deposits can become the main product for placing available funds. In order to invest something in bonds, you need to have some savings or high incomes. Now the real incomes of the population are falling. Against this background, the expectations that the population will be a powerful investor in the stock market, even under state guarantees, seem to me overstated. Now the population is still the most promising to consider as the basis of the resource base of banks, while the currency as an instrument of savings and savings will depart. Some part of the population, of course, will invest money in stock values, but I would not count on the population to "blow up" the market.
– What exchange rate of the ruble to the dollar and euro do you expect in the fall?– At the beginning of autumn, rather, it will be 60-65 rubles, at the end of autumn – no more than 70 rubles.
So far, there are no indications for any sharp weakening. I don't think that even if we talk about tightening additional "nuts" in relation to our oil, the ruble exchange rate will change much. Oil will rise to 130-140 dollars per barrel of Brent if attempts are made to set a special price ceiling for Russia. At this price, even if the discount between Urals and Brent increases from 26% to 30-35%, the inflow of foreign currency into the country will most likely not decrease. Additional demand for it from imports and tourism will not form quickly enough. Plus, apparently, restrictions for non-residents on the stock market will remain.
– What do you think will happen to foreign currency deposits in dollars and euros in the Russian Federation?– Banks will stop setting rates on them, because they will not have the opportunity to earn on these currencies.
As a result, this money can either be kept in the account in anticipation of a change in the exchange rate, or to use settlement operations, for example, to reduce currency risks to pay for holidays abroad in currencies pegged to the dollar or euro.
– What is the probability that the demand for alternative currencies will increase, or will citizens still go into rubles?– Although some banks have already started offering rates on these "new" currencies, they have volatility or difficulties in use.
For example, the dirham is a hard currency, but the possibilities of its use by banks are not yet clear. The yuan still has the volatility of the exchange rate, it is unclear how much the population is willing to accept this risk. The main rule of savings is to avoid currency losses and keep money in the currency in which you are going to spend. If the Russians want to take a risk on the yuan exchange rate, there may be demand, but it is not a fact that the rate will cover the volatility of the exchange rate. And the range of opportunities for spending in it is small. The Turkish lira may be attractive for holiday savings if it did not realize the potential for depreciation so often. Therefore, I do not expect the "revaluation" of deposits in "new" currencies, I believe that the share of ruble deposits and accounts will exceed 90% fairly steadily next year.
– Then what is the key rate of the Bank of Russia and, accordingly, the yield on ruble deposits do you expect by the end of the year?– The key rate by the end of the year may be about 7%, and deposits will be in the range from 5% to 6% per annum: now there are a lot of rubles on the market, banks do not need ruble liquidity.
Of course, such a level of rates will give the stock market chances. But mostly they will be used by institutional investors, not retail investors, who are more limited in the sources of investments.
– With such a key rate, what can be the cost of a mortgage on the market? In your opinion, how much mortgage can be issued this year?– The weighted average mortgage rate is expected to be 6-7% by the end of the year.
And in terms of volume, we expect growth of 13-15% by last year, taking into account all decisions on subsidies. Approximately the same growth rates should be expected from both preferential and market mortgages.
– In general, how would you assess the situation with housing affordability in Russia?– A couple of years ago, the average mortgage term was less than 18 years, now it exceeds 22 years.
Accordingly, mortgage payments have not changed as much as interest rates. Therefore, a partial decrease in affordability due to rising housing prices is offset by an extension of the mortgage term. With the growth of real incomes of mortgage borrowers, this situation is not dramatic from the point of view of affordability, but with a drop in income, affordability may suffer.
– May extend the loan terms.
The risks for these values are rising disproportionately to the growth in the loan terms. I think that at some point the Central Bank will have to look at this situation more rigorously, because the average life of a mortgage loan for 22 years – that's a lot.
– So you think that it is possible to limit the maximum term of the mortgage is 30 years?
– I will say this, the increase in the average loan term is now out, because a person as they grow up starts to make more money, and the credit quality falls. You need to look very carefully at certain age categories originate mortgage loans. Loan term 24-25 years still somehow acceptable from the standpoint of risk, but further growth in terms of mortgage loans is likely to require restrictions or disincentives measures of the Central Bank.
We now have a situation in the sphere of employment is good, but structurally employment will change. We do not expect any bursts of unemployment – here, the situation will be the most hassle-free, bad numbers will not. But in the period of changes in the structure of the economy is quite possible part-time employment that will negatively affect the quality of the mortgage portfolio due to the fall in income when you change jobs or part-time employment.
– What's in the course of restructuring of the economy, the maximum unemployment you predict?
– More than 6.5% will not. This figure even for developed economies is very good.
– How can declining real incomes, and how long this process?
– Two years for sure, taking into account all factors. This year, real disposable income could fall by more than 5%, and next 2023 – about 1%.
– If you return to public Finance, what oil price do you expect for the year, provided that the external conditions will not change significantly?
– About 100-110 per barrel, but if the "valve" we will tighten, then 130-140 dollars. Our oil is, of course, to the full extent these benefits will not use, but it will not fall in price.
– Admit that all the "valve" will fully cover?
Unlikely. First, several countries have already refused the offer. Second, uncertainty is the seasonal energy demand, no one knows what in Europe is winter. Therefore, the situation with the full stop in the current year, exports to Europe of Russian oil I have no idea.
– A ceiling price of oil to really enter?
– You can declare anything but the ceiling price will rise and the oil will flow through other channels to mix for all plants will not follow. In friendly countries it is possible more deeply to recycle – sell the oil, and petroleum products. The world still needs to consume a certain amount of oil and gas that does not go away. Quickly to increase production of such volumes is simply impossible. For example, strategically only after 10-15 years the car will go on electric fuel, and the new transport.
But to generate electricity still needs oil, gas, coal.
– The world is changing. Nuclear energy in the framework of ESG approaches ain't dirty: last year was won by the opponents of nuclear energy, but now the situation has changed. It is possible that the world will go the way of the atom. On some wind turbines and solar panels to develop the economy hard.
– One block normally five or six years under construction, is not fast.
And one of the main builders is Russia. Strategically expanding the use of energy in the world, developed without oil and gas, a drawback of export opportunities, but the process of care from brown energy sources and the transition to a "green" has been a long time, even without sanctions. Therefore, the country had already spent many years preparing for the decline in the share of oil and gas, now can speed up the process. In any case, the demand for oil and gas in the world quickly falls, and the prices take into account this circumstance.
– The last few weeks in Russia there was an unprecedented situation with deflation. In your opinion, how long will the slowdown of inflation? What the growth rate of prices you expect in 2022 and 2023?
We currently predict 14-17%, but it is already clear that inflation will be near the bottom of its forecast. With regard to the growth rate of prices, we now have the annual inflation rate in double digits, this situation is called deflation I hesitate. We see a fall in prices for some items – somewhere traditional, seasonal, somewhere associated with the winding prices with fright in March-April. Now is precisely the price adjustment. For the year, nobody argues that inflation is in double digits, but probably less than 15%. The next year I would definitely be about 7%, but life will show.
– Are there any concerns that the fall may occur a surge of inflation for some reason, for example, trade deficits?
– The deficit as a global trend, we do not foresee. A fairly wide range of goods is produced within Russia, for those goods that are not produced, prices may rise. But inflation is measured by the basket, so the price jump may not be included in the statistics. The most obvious example: by the New Year, the "Olivier index" is considered, it is unlikely to outpace the level of official inflation, because everything is produced internally. For light industry goods, on the contrary, price growth may outstrip the general index. – When can inflation in the country return to the target of 4%?</span> – In 2024 or 2025.
So far I see more probability that in 2025.
– Now, amid high inflation and disruption of traditional trade relations in the world, fears of a recession in large economies are increasingly being voiced. How do you assess the chance of such a scenario? And will it be possible to control inflation in the world commodity markets, primarily energy and food?– I think that prices will be less predictable and more volatile, this year they will remain higher than last year due to geopolitics.
The fundamental difference from the past times will be that Russia will be much less sensitive to external factors, including the recession. It has always been believed that the recession is the departure of non–residents, a drop in demand for our goods. Now there are overlapping factors that affect Russia's foreign trade and financial flows.
The growth rates in Europe and the USA will be lower than last year, but this will not affect us in any way. However, a number of countries with a high amount of public debt will feel a fairly rapid increase in rates, including Italy, Spain. Developing countries will also be affected by this, for example, Brazil has about a quarter of its debt at a floating rate, the market is sensitive to dollar rates. So in some countries, the budget deficit may increase or peculiarities in debt servicing may form. But I don't think anyone in Europe will allow a default.
