Agro Perspectiva

Global economy: prospects 2013

10.01.2013 15:11 "Agro Perspectiva" (Kyiv) — Global financial institutions will continue to teeter on the brink of collapse in the next decade. A statement to this effect was included in a report of the World Economic Forum on global risks in 2013, Voice of Russia reports. Experts are mostly concerned about the probability of the United States facing a ‘fiscal cliff’ and Greece going into default. Meanwhile, the Russian economy inspires hope while the economic situation in China evokes mixed feelings. The Voice of Russia’s Nikita Sorokin reports. The phrase ‘fiscal cliff’ was coined by Federal Reserve Chairman Ben Bernanke as he informed Congress a year ago about what could happen after the Budget Control Act came into effect on January 1st 2013. The events in the US and worldwide could get out of control once the Budget Control Act became effective, Bernanke warned. The Act became a compromise which made it possible to raise the US debt ceiling and avoid default. Secretary of the Treasury Tim Geithner warned on New Year’s Eve that the potential for raising the US debt ceiling further would be exhausted by February. On January 2nd, the Democrats and Republicans did strike a ‘fiscal cliff’ deal thereby postponing a decision on measures to curb the budget deficit for another two months. This means that there will be no increase in taxes or reduction in government spending until the end of February. The ‘fiscal cliff’ deal is but a delay of the inevitable, Investcafe’s expert Anna Bodrova said in a Voice of Russia interview. «The US state debt ceiling will have to be reconsidered. In the meantime, investors won’t buy anything until all these issues of concern are straightened out. The hottest discussions concerning these problems will likely take place at the end of January. In all likelihood, the Republicans won’t strike the same kind of deal with the Democrats they did in December. So far, they have been playing politics, nothing else.» The Republicans and Democrats pursue conflicting financial agendas. While the Republicans insist on spending cuts in order to reduce the budget deficit without increasing the tax burden, the Democrats want to secure this through cutting spending and raising taxes simultaneously. Should the Republicans and Democrats fail to strike a deal, tax exemptions will be abolished which will yield a total tax increase of $600 billion, or about 4% of the GDP, thereby putting the US on the brink of a new recession. Greece is evoking a lot of tension in the eurozone, Jaroslav Lissovolik of Deutsche Bank Russia said in a Voice of Russia interview. «The issue of Greece will be on the agenda of election campaigns in a number of EU countries this year, first of all Germany. If Germany says ‘no’ to further assistance to Greece, the issue of Greece will push all other financial issues into the background by the middle of the year.» Investcafe’s Anna Bodrova supports Lissovolik’s point of view. Greece is bound to come to the fore by May, after it has used up the bailout aid it received at the end of 2012. Athens will require an extra ˆ20–30 billion yet again. The German economy will no longer be able to afford such a burden. This means that Greece’s membership in the eurozone will top the agenda. China and Brazil are poised to demonstrate further economic growth in 2013. Russia may post a higher rate of economic growth in the year 2013, Jaroslav Lissovolik says. In his estimates, the Brent blend will cost $113–114 per barrel, which is a fairly comfortable rate for the Russian economy. Oil prices could rise even higher thanks to a number of risk-related factors that could come in sight. According to the Russian expert, a ‘fiscal cliff’ in the US, if it happens, will have a negative impact on all economies, Russia included. The looming threat of such a scenario should thus encourage Russia to take further steps to diversify its economy in order to become less dependent on market fluctuations and on problems experienced by the world’s major economies.