© Natalia Novikova
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The strongest contagion channel is the oil price, as well as potentially intensified capital outflow. However, there will be more serious and much longer effect on the oil prices. If we see that Greek exit leads to a major recession and collapse of commodity markets, then Russia would be hit very hard. We estimate that the critical level of the oil price is close to $89 per barrel. At that level we might have a marginal growth. Certainly we will have end of year increase, but next year it will be a marginal growth. After that when the government spends all the reserves, this would mean major cuts in fiscal expenditures and serious effect on the growth of unemployment. That is a longer term perspective.
In the short term, there will be a massive capital outflow and pressure on the financial market. Currently the central bank allows more rate flexibility. If we compare this term to 2008, I would expect quicker response to the global developments, part of it we saw last weeks. This usually results in major fall in liquidity locally, because everybody is running on FX, and therefore interest rates rise as well. I would not expect the same impact as we saw in 2008, unless Greek withdrawal from the Euro bloc is followed by disorderly exits of other countries from the EU. This is not our base case scenario. If we are talking about just Greece exit and a lot of supportive measures provided to other countries by both the ECB and the EU, then there would be less severe consequences than they were in 2008.
Do you personally expect Greek exit from the Eurozone?
This is now our base case. However, there could be different scenarios: we could see it is done in a managed fashion, where Greece has some time to postpone the exit till the beginning of 2013, there will be some transitional support from the EU during this period, banking systems in other periphery countries receive help from the ECB, and thus there will be another LTRO. This is a mild scenario of Greece withdrawal from the Eurozone, but the probability of the exit is very high. It is much higher than non-exit.
How Greek exit may affect Ruble?
Currently the Ruble is much more volatile, and it reacts to global news very quickly. We see a part of this reaction right now. Even without this type of scenario we assume that the Ruble will be weakening till the end of this year. Additional pressure from capital outflow that could result from risk-off attitude on the global market will put additional pressure on the Ruble. If under normal circumstances oil prices are expected to be above $100 per barrel, we would anticipate the Ruble to depreciate, thus USD/RUB will be around 36+ in the end of the year. With this additional pressure the pair could be around 37 and up. The timing and the size of the effect, if we compare to previous significant disruption of FX market, would be smaller, I assume.