Author`s name Dmitry Sudakov

Will global crisis continue in 2014?

What changes can be expected on the economic map of the world in 2014? Is the EU going to get out of the protracted financial crisis? Will Ukraine be able to properly distribute the money loaned to it? Will the U.S. dollar exchange rate be stable and what economic turmoil awaits Russia? Experts shared their forecasts for the world economy with Pravda.Ru.

In the past 2013 there have been numerous shocks in the world economy that to some extent affected people in Russia. Will the most significant economic events develop in the New Year?  

The European Union held in the financial crisis by Greece and Spain is still unable to get out of it completely, and the next year does not promise clear improvements in the economy, deputy director of "Banks and credit policies" of the Institute of Europe Anatoly Bazhan told Pravda.Ru.

"According to forecasts out there, there will be some improvements, but nothing significant will happen. This is because the situation is quite weak. It will have an effect, of course, in Russia, because to a large extent the demand for gas and oil in Europe is associated with the situation in the European Union and all Europe," said Bazhan.

The welfare of the world's economies, as noted by the expert, will continue to be influenced by the U.S. dollar, which, fortunately, is not in danger. "While the dollar exchange rate fluctuations will occur, and it is primarily associated with the internal state of the U.S. economy, there will be no shocks because this is the major world currency that relies not only on the U.S. economy, but on the global economy. According to Anatoly Bazhan, the overall situation in the world determines the state of the dollar, because the demand for the dollar depends on global demand and global development dynamics. Accordingly, when the world production increases, the demand for the dollar rises, and that means growth.

"It also has to do with energy prices. We know that the ruble rate goes down when oil prices fall. When the prices rise, the ruble rate goes up, and the dollar rate decreases," explained Bazhan.

The international community was shocked by the events of last fall in the United States. Then the U.S. nearly announced a technical default due to conflicts between Republicans and Democrats over the debt ceiling increase. On October 1st of this year, the U.S. government services suspended their activities. A financial disaster did not happen, but the entire world was horrified by the consequences on the global market, which could result in the collapse of the American system. Deputy director of the Institute of USA and Canada Studies Victor Supyan has assured Pravda.Ru that the storm has passed.

"It was a very troubling moment for all, we remember that in October a decision on the matter was postponed until January 15, but all the parameters of the budget have been agreed upon early, so I think that the issue of the public debt ceiling will be resolved earlier. This is different from the last couple of years when all decisions on the debt ceiling were made before a threat of a default," said Supyan. "Without being excessively optimistic (there are problems in the U.S. economy) we can say that the situation is improving, the economy is definitely on the path to a steady growth."

According to the expert, in Q4 the U.S. GDP rate showed 4.1 percent growth, and stock indexes grow slowly, the unemployment rate was decreased to 7 percent, and the budget issue was finally resolved by an agreement between Republicans and Democrats on a new budget for 2014.

Russia, on the contrary, will face budget issues in the coming year that generally will be a year of trials for the Russian economy, said head of the economy department of the CIS Institute Aza Mihranyan.

"Most forecasts for the Russian economy, unfortunately, point out criticality and pessimistic vision of the new year. In my opinion, the difficulties that lie ahead in 2014 are due to the fact that most of the extensive growth factors (i.e., due to expansion of gross parameters) today in the Russian economy have been already passed. Therefore, the need for a radical change in the modernization and intensive approach towards the management of the economy, that is, improvement of the quality of these parameters, is not only the obvious, but an urgent need. In this sense, if we look at the economy as an investment cycle (modernization and reconstruction means new investment projects), we can expect a decline in growth in 2014," said Aza Mihranyan, stressing that Russia will experience a period of investment without tangible results. "Let's hope that this year will be in accordance with the Eastern calendar the one that requires a serious investment, will be labor intensive, there will be a lot of work and, of course, expectations that by the end of the year we will still see growth."

Mihranyan noted that Russia's economic growth will be symbolic. The situation is far worse in Ukraine for which it is more difficult to provide any forecasts despite the fact that the Ukrainian authorities were able to get funds to improve the financial situation if not from the EU then from Russia.

"The funds allocated by Russia under the loan are not targeted, so it is very difficult to predict the management of these funds," says Aza Mihranyan. "However, as we know, in addition to the loan agreement, there is an agreement on a number of projects that will have to be developed in terms of the joint use of the investment funds. These projects are associated with the rocket and space industry, aircraft construction and obviously some co-financing, so the use of a joint loan may take place in 2014. Therefore, we can hope that some of that loan will service the economy."

In addition, the Russian money, according to Mihranyan will be spent on repayment of current expenditures, debt and social sphere. Without this, Ukraine's economy will not be able to continue more or less normal functioning. In general, the stabilization of the Ukrainian economy will depend on the course chosen by the authorities, because despite of the loan from Russia, the final word about the European integration has not been said.

"If they do develop together with the Customs Union, with CIS, and these ties will not be broken, I think they will come out of the difficulties that currently exist and are reflected in the state budget of Ukraine. If they seek a union with the EU again and limit their ties with the CIS and the Customs Union, they would face, of course, significant challenges because their economic cooperation with the EU will not compensate for the loss of the CIS markets in the near future," shared with Pravda.Ru Anatoly Bazhan. If they open themselves to Europe, at first they will face shock and collapse."

In any case, according to Bazhan, in the event of association with the EU, Ukraine may expect a long recovery and extremely slow adaptation, but many segments such as agriculture can be considered buried. To some extent, metallurgy will be the only industry that may stay afloat. But this is a long term forecast. As for the immediate future of Ukraine, the authorities will have to choose the direction, west or east. The economic indicators they will eventually achieve will depend solely on the foreign economic policy.

Maria Snytkova


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