Alfa, UralSib Predict Slower Growth in '09

Two Russian banks cut their forecasts Thursday for GDP growth next year, citing a crisis of confidence in the banking sector amid a major international liquidity squeeze.

Alfa Bank cut its growth forecast for 2009 gross domestic product to 7 percent from 7.5 percent, while UralSib announced that it was lowering its prediction to between 6 and 6.7 percent.

"The government's massive rescue package for the banking sector will not support growth," Alfa Bank analysts wrote in a note Thursday. Instead, banks will use bailout funds from the government to build up liquidity, they wrote.

The government announced measures including up to $44 billion in emergency loans for banks and cuts to reserve requirements to increase liquidity after stock markets sank last week and interbank lending rates rose to record highs.

"Despite the 1.1 trillion rubles in injections since Sept. 1, financial uncertainty is pushing banks to build a liquidity cushion," the analysts said.

The banking sector will require injections of another 1 trillion rubles to overcome liquidity problems in October, the Alfa note said. A big chunk of what was already injected -- 430 billion rubles -- will be needed just to refinance deposits.

The IMF on Thursday cut its forecast for 2008 growth in Russia to 7.1 percent, from 7.8 percent, Bloomberg reported.

Alfa also presented a dimmer outlook for 2009, raising its inflation forecast to 14 percent and predicting a GDP growth rate of 6 percent. Despite the high inflation rate, the bank said it expected real estate prices to decline in the next six to 12 months.

"There is no question that Russia's growth rate is set to slow," UralSib wrote in its note. "In our base-case scenario, we continue to forecast Urals trading at above $90 per barrel next year, which would imply 6 to 6.7 percent GDP growth in 2009."

They estimated that capital outflows from late July to mid-September topped $50 billion, leading to "the valuations of all traded companies to plunge."

The 6.7 percent forecast matches one Aug. 21 by the Economic Development Ministry, a few weeks before the economic crisis accelerated. In a report to the Cabinet, the ministry forecast a GDP growth rate for 2009 to 2011 of 6.2 percent to 6.7 percent. Calls to the ministry went unanswered Thursday.

Over the past few years, the government has created a substantial financial cushion and managed to lower Russia's vulnerability to external risks, such as commodity-price swings.

The country's foreign exchange and gold reserves, which currently stand at $560 billion, exceed the overall national debt of $440 billion, UralSib wrote. This, coupled with the fact that the domestic banking sector has next to no exposure to global security markets provides a measure of economic stability.

The outlook for further growth will hinge on the scope, depth and duration of the global crisis, as well as the ability of domestic drivers to support the economy on their own for a significant length of time, UralSib said.

If, as expected, some developed nations slide into a recession by the end of the year, "Russia's access to external sources of cheap credit won't reopen for years," UralSib said.