Financial Markets: Increasing Complexity, Maintaining Stability

3–5 July 2019, ST. PETERSBURG

    Presenting key points of Nouriel Roubini’s speech at the International Financial Congress in Saint-Petersburg .Mr. Roubini the Head of Roubini Macro Associates.

    Assessing Brexit

    Brexit will have a significant impact on the UK, as it will contribute to investors’ uncertainty. Most likely, it will be followed by an economic slowdown. The share of the UK in the global economy is only 3%, which means that Brexit caused a local shock, not a global one. Brexit may sooner or later lead to disintegration of the European Union and the euro-zone. Central banks of various countries will have to take actions because of the Brexit. 

    Scenarios of EU Disintegration

    If Great Britain is out of the European Union, Scotland and Northern Ireland may leave the UK. Catalonia may take it as an example and separate from Spain. Migration crisis may lead to dissolution of the Schengen area.

    Response to Globalization

    Globalization is a winning factor only for those, who have a financial capital, qualified workforce and a good education system. Unskilled workforce is losing money, which creates nationalist movements.  

    Russia’s Economic Challenges and Opportunities

    Even if the sanctions are cancelled and the economy gets back to stability, growth potential won’t see a significant increase without structural reforms. Despite numerous structural barriers that keep the growth rates down, the macroeconomic system is more stable and less vulnerable than it used to be several years ago.

    Russia’s reaction to the oil crises was different that Saudi Arabia’s. For instance, its monetary policy was replaced with inflation targeting, and inflation rate will hardly exceed 4%, which is an important factor for macroeconomic stability. Besides, Russia introduced a floating exchange rate, and it helped overcome many shocks, as lower exchange rate leads to lower vulnerability of the country from the macroeconomic standpoint. 

    Independence of the Central Bank is a significant factor, as both monetary policy and budget policy are the corner stones of economic stability. However, there’s always a risk of political intrusion that will make the Central Bank choose a different path forward.