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Russian Economic Report No. 23. Growth with moderation and uncertainty. Zeljko Bogetic Lead Economist and Coordinator for Economic Policy for Russia, The World Bank November 2, 2010 Moscow. Recent Economic Developments Economic and social Outlook for 2011-2012. Key messages .

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Russian economic report no 23

Russian Economic Report No. 23

Growth with moderation and uncertainty

ZeljkoBogetic

Lead Economist and Coordinator for Economic Policy for Russia, The World Bank

November 2, 2010

Moscow



Key messages
Key messages

Moderating growth with uncertainty

Moderate oil prices, downside risks

Rising fiscal risks


Global industrial production and trade have recovered to pre-crisis levels but there has been a “pause” in growth in recent months

Global Industrial production

Source: Global prospects, World Bank.


Non bank capital flows to developing countries continue to grow but bank flows remain weak
Non-bank capital flows to developing countries continue to grow, but bank flows remain weak

Capital flows to developing countries

Source: Global prospects, World Bank.



But then returned to growth in 2010 albeit less robust than in other regions
––but then returned to growth in 2010, albeit less robust than in other regions

Source: WB staff estimates.


Russia s recent economic developments
RUSSIA’S RECENT ECONOMIC DEVELOPMENTS

  • Domestic demand—regaining momentum

  • Labor markets––a temporary decline in unemployment

  • Balance of payments––improved, but then deteriorating due to a rapid growth in imports

  • Monetary policy––in search of a fine balance to contain inflation and support growth

  • Fiscal policy––rising fiscal risks


With stronger domestic demand the russian economy regained momentum in the second quarter 2010
With stronger domestic demand, the Russian economy regained momentum in the second quarter 2010

GDP growth by main sectors (value added): 2006–2010

Source: World Bank staff calculations based on Rosstat data.


A sizeable but temporary grain shock impact on poverty
A sizeable but temporary grain shock: momentum in the second quarter 2010impact on poverty

Poverty increase due to changes in grain prices

Source: World Bank staff estimates using household survey data.


Labor markets unemployment lower but still unsettled situation
Labor markets – unemployment lower but still unsettled situation

Labor productivity, disposable income, wages, and unemployment

Source:Rosstat.

a Data for the first half of 2010.


Ratio of Regional Unemployment rates 2010*/2008

Source: Rosstat; World Bank staff estimates .*Data for January - August.


Balance of payments improved but then deteriorating due to a rapid growth in imports
Balance of payments–– regionsimproved, but then deteriorating due to a rapid growth in imports

Balance of payments (USD billions), 2007–2010

Source: CBR. a Preliminary estimates.


Monetary and exchange rate policy
Monetary and exchange rate policy regions

  • Monetary conditions remain loose

  • Trade off: low policy rates or inflationary pressures

  • Gradual recovery in credits

  • CBR has further widened the exchange rate corridor

  • Stock of credits to companies and households in 2007–10

Source: CBR; World Bank staff estimates.


Fiscal policy smaller than expected deficit due to favorable oil prices
Fiscal policy––smaller-than-expected deficit due to favorable oil prices …

Medium term fiscal framework

*Draft Budget 2011 – 2013.

Source: World Bank staff estimates based on draft budget documents, the Ministry of Finance.


…but rising fiscal risks favorable oil prices …

  • Downside risk to oil prices

  • Dwindling “oil cushion” in the budget (the difference between the forecast

  • and planned oil price in the budget) and fiscal reserves

    • This makes budget more vulnerable to new oil shocks

    • If the oil prices were to fall to an average of $60 in 2011, the deficit

    • would increase to 5-5,.5 % of GDP range

  • Rising expenditure pressures before the election

Source: State Duma database, Bloomberg, WB.


Economic and social outlook for russia 2010 2012
Economic and Social Outlook for Russia, 2010-2012 favorable oil prices …

The summary of the global outlook

Source: Russian Economic Report, The World Bank.


Oil prices are expected to remain stable but with downside risks
Oil prices are expected to remain stable but with downside risks

World Bank oil price forecast. Average crude

(Brent, Dubai and WTI), simple average, $/bbl


Outlook for russia 2010 2012
Outlook for Russia: 2010 - 2012 risks

Source: Global Economic Prospects (World growth and oil prices), and Russian Economic Report, The World Bank.


Sources of growth
Sources of growth risks

Demand sources of Russia’s real growth, by quarter, 2008–10 (percent change year to year)

Source: Rosstat; World Bank staff estimates.


Russia’s risksoutput to return to pre-crisis level only in 2012; long-term growth likely to be much more moderate than before the crisis

Real GDP Level (Index, seasonally adjusted): 1998 vs 2008-09 crises

Q1 1999

Source: Rosstat, WB staff calculations.


In summary
In Summary … risks

  • Moderate growth with downside risks to oil

  • Domestic demand driven growth

  • Unemployment to get worse before it gets better

  • Smaller regions with greater share of SMEs and larger flows of FDIs, and better investment climate lead employment recovery

  • Sizable but temporary grain price shock

  • Monetary - exchange policy - a balancing act

    Looking ahead

  • Short-term: Fiscal risks rising: oil prices, the dwindling “oil cushion” in the budget, rising expenditure pressures, contingent liabilities

  • Long-term constraints: infrastructure, institutions, investment climate


Thank you
Thank you! risks


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