Impact of US default on other countries

Russia is not protected from shocks that threaten the economy of the whole world if the US rating decreases or there is a default on obligations, says Ivan Chakarov, chief economist at Renaissance Capital.

The negative development of events will entail a decrease in the growth rate of Russia’s GDP to 2.9-3% with a slowdown in the US economy by 1 percentage point, according to the Renaissance Capital experts. While Russian GDP grew in the first quarter by 4.1% on an annualized basis, according to the forecast of the Ministry of Economic Development, this figure will reach 4.2%.

The problems of the United States will lead to a worsening of the situation around the world and, in particular, the lending market will suffer greatly, where credit cards act as a catalyst for development, but Russia is more negatively affected than other countries. “The increase in GDP in the first quarter gave the companies confidence: relying on qualitative changes in market conditions, they increased inventories, despite the stagnation of internal and external demand,” he notes. The complication of the situation in the US will negatively affect the expectations of the real sector. This will entail a return to the stagnation of the Russian economy, he emphasizes. Russia is not immune from external shocks due to structural weakness of the economy.

A slowdown in the growth of the Russian economy is possible if the difficulties of the United States cause a drop in global demand for oil, as a result of which prices for other commodities will decrease, according to Alexander Kholodov from HSBC. A 1% slowdown in the US economy will entail a 2% decrease in oil demand, Tseplyaeva calculated: «In this case, the oil price will be significantly lower.» The rate of decline in the Russian economy depends on the state of all emerging markets, she notes: if the markets of China and India grow at a high rate, there will be no such serious consequences..

The growth rate of the US economy in the second quarter increased from 1.9% to 2.3%, but consumption increased by less than 1 pp US Federal Reserve.

The difficulties of the United States will also raise the borrowing rates of the Russian government. With an increase in the yield on ten-year US bonds from 3.2 to 4%, the yield on OFZ will increase from 7.13 to 7.54, experts at Renaissance Capital suggest. The yield of OFZs will be significantly influenced by the behavior of the Central Bank: whether the Central Bank will keep the ruble exchange rate or devalue. However, the US default will have a positive effect on the global economy in the medium term, he believes: a decrease in the dollar exchange rate will have a positive effect on US foreign trade and the world trade balance..