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Обращаем внимание на инновацию, созданную на данном сайте. Внизу главной страницы расположены графики,  которые в on line демонстрируют изменения цен на мировых рынках золота  и нефти, а также экономический календарь публикации в Интернете важных мировых экономических индексов 

 
Forecasts

Club of Analysts’ Forecast #3 2008. Exchange rate of Hrivnya will stabilize at a new equilibrium level.


 Forecasting of a depreciation of the artificially revaluated exchange rate of Hrivnya and behavior of some market players was not a challenge. Moreover, the forecast of growing risks in the Ukrainian banking system was also an easy task.

             During the last two years we have been forecasting exactly this scenario – depreciation of the Hrivnya and active speculative activity.

             Growing deficit of current account made support to our forecasts. This means that the fundamental macroeconomic equilibrium has being violated beginning from April 2005 with further aggravation in 2008.

            The idea is that under any situation the economy will restore the equilibrium due to internal self-organization. Violation of the fundamental equilibrium can give some results in the short-run, but will cause severe damage in the medium- and long-run due to crisis processes of self-restoration of economy.

            The explanation of the processes for economy of Ukraine is as follows. The exchange rate of the national currency and current account balance are functionally interconnected. The results of the wrong strategy were artificially strong Hrivnya and growing current account balance. As a result, business activity of exporters and domestic producers has been partially suppressed due to growing supply from the side of importers.

            It’s not a secret for experts that revaluation of the national exchange rate causes a decrease of net exports (difference between exports and imports).

            The first attempt to stop restoring the economy of Ukraine from the side of the National Bank was made in 90-es, when keeping the rate on the level of UAH/USD 1.87 created a negative current account balance followed by a drastic devaluation of the Hrivnya to UAH/USD 5.50 and restoration of a positive current account balance. Then, in 1998, the situation was aggravated by blowing of the government bonds bubble and crisis in Russia (Russia declared default which became a “life vest” for Ukraine to explain the depreciation of the Hrivnya). Due to this reason the crisis in Ukraine, caused by artificially strong Hrivnya, was not obvious, having being hidden among other problems. Worth noting, in the end of 90-es Ukraine had positive balance of current account due to devaluation of the Hrivnya, and this positive balance remained positive until 2005.

             The second attempt to stop restoring the economy of Ukraine was on the pretext of fighting with inflation in 2005, when the National Bank again revaluated the Hrivnya.

            There were a lot of excuses: inflation was growing – producer price index was growing stimulating a growth of consumer prices. But all this was a consequence. The National Bank tried to regulate consequences, except of looking for a problems causing inflation and resolve them. As a result, revaluation of the Hrivnya has been chosen as an urgent measure to combat inflation.

            It was obvious already in 2005 that there will not be a “soft landing” of the economy. Nobody, even the NBU, could stop these destructive processes. The structure of crediting and inflow of resources to the economy have been changed. Overvalued Hrivnya stimulated imports suppressing domestic production. Quick devaluation of the Hrivnya to restore positive balance of current account was impossible. Treating the temperature (inflation) the disease has remained.

            Thus, the NBU wanted to do as better, but did as always.

 The result of treating the inflation with revaluation of the Hrivnya in 2005 became the following problems in 2008:

-        even higher inflation;

-        deficit of current account;

-        foreign debt of 60% of GDP;

-        crisis of the banking system.

The side effects were obvious, but the hope for soft landing still remained.

Third attempt.

             But alas, the National Bank with stubbornness worth criticizing revaluated the Hrivnya the third time and make some steps to limit crediting. Economy, as a train, stopped suddenly facing these obstacles. After inflation of 30-40% we could see deflationary tendencies. The growth of industrial production decelerated. Under these conditions the banking system faced problems of returning multibillion debts.

 Bad end.

 Now, economy can restore only through an adaptation to the crisis extended in the time. Market processes on the FOREX market caused depreciation of the Hrivnya against the US Dollar.

            As we had forecasted, depreciation of the Hrivnya, as an inevitable reaction of the economic system on artificially distorted equilibrium, was only the question of time. The Hrivnya had to depreciate either due to inflation, or as a result of nominal depreciation of the exchange rate.

             We can accuse some politicians playing a “dirty game”, world financial crisis, deficit of the US Dollars in the EU, but without fundamental disproportions nobody could speculate for a long time.

Conclusions and propositions.

 Such a problem with the monetary policy appeared only because the National Bank was been transforming into a closed for analysts and scientists system. This breaks its ties as a system guaranteeing effective correction of policy, which is necessary for development of the money market. As well known, entropy is increasing in all closed systems, and they are exposed to the threat of crisis processes, without any exclusion as the experience has shown.

             The National Bank, as we reckon, has to follow the policy of Alan Greenspan with the main accents on:

-        forming of rational expectations;

-        policy of active informing of market players; supporting of informational and educational centers of the country;

-        forming of societies of analysts, taking part in their activities (for example, Alan Greenspan was a head of New York Society of Analysts);

-        stimulating scientific activity in the area of monetary, currency and financial problems of development markets and institutions.

 The problems have appeared also because of interventions of politicians into activity of the National Bank. Political bargaining on the position of Head of the National Bank is not a mistake – it’s intervention into activity of the main centers of management by system processes. For example, in the United States President of the country is criticized for mistakes of Head of FRS. Changing of Head of FRS is the result of his retirement or change of policy. This experience has to be followed by Ukraine.

             The exchange rate will stabilize at a new equilibrium level. The rush will end, but the NBU has to get rid of the deficit of current account. The economy will face the trough of the cycle in the beginning of 2009. The phase of expansion will begin in the end of summer depending on the performance of the banking system with 7-billion repayments of loans, industries with artificially created shock. Apart from these factors, expansion depends also on appearing of innovation technologies – the main drivers of economic development.       

 

              

 

 

Posted on the website: 2008-11-22

Comments on this article:

2008-10-09:
Прогноз ИЭЭ #6 (69). Мировая экономика получит импульс экономической активности в начале 2009
 среду 08.10.08 семь центробанков мира одновременно понизили учетные ставки на 0,5%
2007-02-06:
The forecast of the IEE #3 (59). Economic dynamics in Ukraine for 2007
In 2007 on the forecast for Ukraine following risks will be imposed
2007-01-18:
The forecast of the IEE #2 (58). Currency tendencies for 2007

Summing up 2006 it is already possible to speak, that for US dollar it was one of the best periods. We shall recollect even the end 2004 beginning of 2005 when its rate has sharply gone downwards in relation to practically all leading world currencies

2006-04-26:
The forecast of the IEE #8 (47).

In political relations between Yushchenko and Timoshenko eccentric events must happen to May 2006 (the Forecast on Hlebnikov Part 3)

2006-04-08:
Forecast IEE #7 (46). Europe: simultaneous growth of risks and sociopolitical pressure
The increase in the discount rate by the European central bank (ЕCB) in 2006 will cause a growth in the risks in the economies of incorporated Europe
2006-04-07:
The forecast of IEE #6 (45). Exchange risks of the world in 2006
afraid, that in the second half of 2006 the dollar exchange rate in the world exchange markets can fall to 30 % - 45 % in relation to ...
2005-05-10:
IEE Forecast [16]. Ukraine will not avoid crisis, if not to take precautions and not to start innovative processes
After year 2006, the economy of Ukraine will step in a phase of its first serious economic crisis
2005-04-27:
IEE Forecast (15). American economy will absorb the world capitals like a powerful pump in 2005
Even today we may predict the result of a FRS experiment on driving of the American economy from " a soft patch " at the beginning of 2000
2005-04-25:
IEE Forecast. If there are no innovative priorities, the habitation market will become a risky point of the fund for business and investors.

The real estate sector is a small drop, and but for economy it reflects the bitter history of Ukraine, and (without exaggeration) all the CIS history.

2005-04-05:
IEE Forecast (13). Investments outside of systemic innovations go "nowhere": on the lot of oil and dollar
World prices for oil and dollar exchange rate will be "the valve of constant pressure " for economic growth
2005-03-23:
IEE forecast and comment (II). If the discount rate will raise, dollar will strengthen
Though practically nobody doubts a possible FRS decision to raise a discount rate by 0,25 %, the world of analysts of the currency market has stopped waiting
2005-03-22:
IEE forecast and comments. On a sudden problem of " canceling of the obligatory sale of 50 % currency proceeds"
Political risks in management of economy do not weaken in Ukraine. That can provoke an economic crisis even in a short-term prospect (after 2006)
2005-03-18:
IEE Forecast. Dollar, oil, steel, and the global innovational system will influence the world dynamics
Factors, which will influence economic dynamics in the nearest future
2005-03-01:
IEE Forecast. Ukrainian economy is most likely to remain excessively dependant on tools of economic policy in 2005
Most likely, innovative processes, capable to bring Ukraine forward at any commodity or technological sphere will not start in
2005-02-25:
IEE Forecast. The World Economics Will Run a Fever For Some More Time
According to leading economist's opinion, continuous decrease of long-term rates in the world's most developed countries is one of the greatest puzzles in the financial world today. The problem is important for the USA, and other national economics
2005-02-23:
IEE Forecast. The World Economics Will Run a Fever For Some More Time
The world economics will run a fever for some period (5-10 years). It will suffer decreased production effectiveness, raised consumption of oil in China, price fluctuations for fuel. After that, we will experience an unprecedented and grand innovational project. The project will change the quality of all the world economics, absorb all the free capital, and increase long-term yield.
2005-02-15:
IEE Forecast: Growth of a dollar exchange rate can cause growth of the external economic risks for Ukraine
As to the internal factors, which compensate specified risks, it is necessary to carry significant potential of economic growth to them due to activization of internal consumption. It is a question of activization of the factors removing restrictions on ways of incomes growth of people, of fine and average business.
2005-02-07:
IEE Forecast. In economic there can be a slow economic growth with the crisis periods
The deficiency growth of the account of current operations in the USA is connected first of all with smooth and deep downturn of a discount rate.
2005-02-01:
IEE Forecast: on a dollar exchange rate, OPEC conference, and session of FRS board, Bush's speech and meeting of G7.
Events of this week will leave the trace in 2005 World discussions
2005-01-19:
IEE Forecast
The committee for Federal Reserve System (FRS) in the USA (FOMC) will raise a discount rate for 0,25 % having brought it up to the value of 2,50 % at the next session, which will take place on February 1-2, 2005.
2004-12-30:
IEE. In the coming year the price for gold will continue to grow
Gold already would seem ceased to carry out function of money, again in the price because of the monetary markets dynamics.