Fears for the Eurozone economy have resurfaced on the back of weak German and French 2Q 2011 GDP data. Business RT spoke with Yaroslav Lissovolik, Chief Economist at Deutsche Bank Russia about the interplay between the economic outlook and the markets.
RT: Was the recent rally in the markets a dead cat bounce in your opinion?YL: “I don’t think so, I think that there are reasons to believe that the markets can muster an upward trajectory in the coming days.A lot will, of course, depend on the data flow from the US and Europe, in the coming days.But if we get a week of sustained gains in global markets and in Russia, I think that should provide ground for further sustainable growth in equities.”RT: What's your view on the second dip of the recession?YL:“Well I think the threat of that is rising as long as this volatility in the markets continues, because if this volatility continues for too long we can have a situation whereby, just like in 2008, this volatility and this uncertainty can start to penetrate into the real sector of the economy.Through slower growth in investment, through lower consumer confidence, etc, so, I think, that if we do see swift action from the US, from the EU, in trying to bring confidence to financial markets, that still can avert a double dip recession.”RT: Is the world in a better or worse situation to deal with a new crisis than it was in 2008?YL:“I think, there are different sides to this. On the one hand corporate balance sheets are better now, than they were in the run up to the first wave of the crisis.On the other hand the sovereign balance sheets in the developed world are worse.You have tremendous budget deficits in the US and some of the countries of the Eurozone, and it will take time for that to be sorted out.So on balance I would say it is probably somewhat more difficult now, to deal with the crisis.Because essentially for the countries involved the fiscal channel of dealing with the crisis is essentially restricted. It is difficult to activate.”RT: How vulnerable is Russia? Last time it suffered a dramatic slow downYL:“A major slowdown, and I think Russia during this period of volatility is still vulnerable because fundamentally the source of this vulnerability is dependency on the oil price.And if oil prices again decline, they decline significantly, then this is a blow to Russia’s macroeconomy, including Russia’s budget, including Russia’s balance of payments and the rouble.So a lot depends on the dynamics of the oil price in terms of how this global volatility translates into Russia’s macroeconomic situation.”