EXCLUSIVE: Sberbank CIB chief economist denies that oil pivotal to Russian economy

By Andrei Skvarsky.

Evgeny Gavrilenkov, chief economist at Sberbank CIB, the investment arm of Russia’s biggest lender Sberbank, denies that Russia’s economy hinges on oil, taking issue with a common view among economists worldwide.

“I fundamentally disagree with that,” Gavrilenkov said in an interview with EmergingMarkets.me, arguing it is more important what economic policy the Russian government pursues and pointing out that growth “practically stopped” in Russia when crude was still worth more than twice as much as today.

“Of course, oil is important as a potential source of foreign currency, but I would attribute more weight to economic policy. Everything was fine in international markets, say, in 2013, oil was over $100 dollars per barrel, but economic growth practically stopped. There was growth of a little more than 1%. Last year the price of oil was also quite high, but economic growth was again 1% slower. It’s the policy of the central bank and economic policy as a whole that’s important. I’m saying this because high prices of oil can’t guarantee economic growth,” Gavrilenkov said.

And anyway, “it’s not the level of oil prices that causes problems but changes in it”, he said.

“When oil goes down in price, economic activity largely slows down or comes to a halt. The former model of growth was geared to an inflow of cheap money with consequent excessive lending and excessive domestic demand, which was largely overheated. When the price of oil falls, this model ceases to work, and a natural period of adaptation comes,” the economist said.

“Some indications have emerged of month-by-month growth, and this means that in principle there can be growth even if oil is $45 per barrel,” he said.

While he was not 100% certain that Russia was past its lowest point because of “very contradictory” official statistics, he argued there were faint indications that “we touched the bottom” this summer and that there were “indirect, and even direct, indicators for the past few months that point to stabilisation, and even to some growth in the past couple of months”.

“This is clear from investment activity, which hasn’t dropped as much in the past two to three months as was the case in the second quarter. It would seem the turning point had been passed, but now everything will depend on what kind of policy is pursued,” he said.

Gavrilenkov, who was talking to EmergingMarkets.me on the sidelines of a Sberbank CIB-organised conference in Moscow that discussed the situation in the global metal and fertiliser markets, dismissed a suggestion by some analysts that the ruble has bottomed out.

The Russian currency is unlikely to reach the bottom “as long as we remain an economy with high inflation and as long as there remain non-market elements in the policy of the central bank”, he said.

Such non-market methods include “refinancing in foreign currency that was provided at the end of last year and in the first quarter of this year”, Gavrilenkov said. “It was one of the factors that strengthened the ruble.”

“In the second quarter and the third quarter the ruble kept getting weaker because the central bank stopped providing foreign currency to boost liquidity. Banks still have $25bn to $26bn stuck on their balances that ideally they have to return to the central bank. The value of the ruble will in general depend on what the central bank does, on whether it takes it back according to schedule or whether it puts back the repayment deadlines,” Gavrilenkov said.

“So the ruble will remain volatile, but, of course, there won’t be fluctuations as big as those we have seen,” he said.

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