The Dawn of a New Economic Era? Russia Economic Report April 2015 | - - PowerPoint PPT Presentation

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The Dawn of a New Economic Era? Russia Economic Report April 2015 | - - PowerPoint PPT Presentation

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The Dawn of a New Economic Era? Russia Economic Report April 2015 | Edition No. 33 Main messages 1 A steep drop in oil prices, geopolitical tensions with sanctions shocked Russias economy an economy already impacted by lingering

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SLIDE 1

The Dawn of a New Economic Era?

Russia Economic Report April 2015 | Edition No. 33

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SLIDE 2
  • A steep drop in oil prices, geopolitical tensions with sanctions shocked

an economy already impacted by lingering structural problems.

  • The economy was successfully stabilized. The shocks hit the economy

late in the year. Growth was 0.6 percent.

  • Weaker Ruble and trade restrictions revived manufacturing activity.

Russia’s economy experienced two shocks in 2014, but avoided a recession Growth prospects for 2015-2016 are negative

  • The full effects of the two shocks will become evident in 2015 and

likely push the Russian economy into recession.

  • The World Bank baseline scenario projects a contraction of 3.8

percent in 2015 and a contraction of 0.3 percent in 2016.

  • Two alternative scenarios with a lower- and upper-bound oil price.

The impact of sanctions is likely to linger for a long time

  • The World Bank baseline outlook sees the poverty rate increasing

from 10.8 percent in 2013 to 14.2 percent in 2015 and in 2016.

  • This would be the first significant increase since the 1998-1999 crisis

due to declining income and consumption and high inflation.

1 2

Achievements in shared prosperity are under threat

  • New realities will have the potential to alter the structure of the

economy and the ways Russia integrates with the rest of the world.

  • Strategic policies needed to balance old and new risks to the

economy: (1) manage adjustment to the lower oil price and sanctions; (2) lessen structural growth constraints.

4

Main messages

3

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SLIDE 3

Russia Economic Report No. 33

  • 1. Recent Economic

Developments

  • 2. Outlook and Risks
  • 3. The Economic

Impact of Sanctions

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SLIDE 4

Recent Economic Developments: A Year of Economic Turmoil

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SLIDE 5

The Tale of Two Shocks: Oil Prices and Impact

  • f Economic Sanctions

Oil Prices and Ruble Exchange Rate in 2014

30 35 40 45 50 55 60 65 70 40 50 60 70 80 90 100 110 120 Oil price Rub/USD (right hand axis)

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→ High Inflation and Declining Real Wages Dampen Consumption

Russia’s CPI inflation by components and Real wage growth, percent, y-o-y

2 4 6 8 10 12 14 16 18 2011 2012 2013 2014 2015 Food Non-Food Services CPI

  • 10
  • 5

5 10 15

2009 2010 2011 2012 2013 2014

Nonmarket Nontradables Tradables Total

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SLIDE 7

Russia’s Economy Avoided A Recession

Growth composition, percent, y-o-y

  • 15
  • 5

5 15 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Consumption Gross Fixed Capital Formation Change in inventories Export Import Stat error GDP growth

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SLIDE 8

→ Monetary Tightening and High External Borrowing Cost Extinguish Investment

Central Banks Key Policy Rate (percent) and Russia’s CDS spreads (bps) for 5 year bonds

140 240 340 440 540 640

4 6 8 10 12 14 16 18

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SLIDE 9

→ Tradable Sector Becomes Main Growth Engine

Contribution to GDP Growth By Sector, y-o-y, percent of GDP

0.0

  • 2.7

1.3 1.8 0.5 0.3 0.4 5.0

  • 3.6

2.8 2.2 2.9 1.0 0.3 0.2

  • 0.4

0.0

  • 0.2

0.1 0.0

  • 0.1
  • 7.0
  • 5.0
  • 3.0
  • 1.0

1.0 3.0 5.0 2008 2009 2010 2011 2012 2013 2014 Tradable Non-tradable Public sector

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SLIDE 10

World Bank Outlook for Russia: A Protracted Recession

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Global Growth Moderately Rising

Global real GDP growth, percent, y-o-y

2009 2010 2011 2012 2013 2014e 2015f 2016f 2017f World

  • 1.8

4.3 3.1 2.4 2.5 2.6 2.9 3.2 3.2 High income

  • 3.5

3.0 1.9 1.4 1.4 1.7 2.1 2.4 2.2 Developing countries 3.0 7.8 6.3 4.7 5.0 4.5 4.5 5.1 5.3 Euro area

  • 4.5

2.0 1.7

  • 0.7
  • 0.4

0.9 1.4 1.7 1.6 Russia

  • 7.8

4.5 4.3 3.4 1.3 0.6

  • 3.8
  • 0.3

2.2

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Russia’s Outlook Depends on Oil Prices

Growth in Global Oil Demand

(4.00) (3.00) (2.00) (1.00)

  • 1.00

2.00 3.00 4.00 2007Q1 2008Q3 2010Q1 2011Q3 2013Q1 2014Q3 mb/d, year over year growth OECD China Non-OECD, ex China

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Russia’s Growth Outlook is Negative

GDP growth, percent, y-o-y

  • 4.6
  • 1.0

3.4 1.3 0.6

  • 3.8
  • 0.3
  • 2.9

0.1

  • 5
  • 4
  • 3
  • 2
  • 1

1 2 3 2012 2013 2014 2015 2016 Lower-bound scenario Baseline scenario Upper-bound scenario

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Real GDP Levels Fall Below 2012

Real GDP, percent, 2012=100

97.2 96.2 100.0 101.3 101.9 98.0 97.7 99.0 99.1 95 96 97 98 99 100 101 102 2011 2012 2013 2014 2015 Lower-bound scenario Baseline scenario Upper-bound scenario

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Shared Prosperity Achievements At Risk

Poverty and Shared Prosperity

15.2 13.3 13.0 12.5 12.7 10.7 14.2 14.2 10.8 11.2 14.8 15.7 12.7 12.6 0.410 0.412 0.414 0.416 0.418 0.420 0.422 0.424 10 11 12 13 14 15 16 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Poverty rate, % Baseline scenario Lower-bound scenario Upper-bound scenario Gini (rhs)

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Is the Middle Class Still Growing?

Share of the Population with Per Capita Income in US$ ppp / day

50 100 more than 50 USD/day 25-50 USD/day 10-25 USD/day 5-10 USD/day less than 5 USD/day more than 10 USD/day

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SLIDE 17

Gross capital formation, percent of GDP, and Total factor productivity growth

5 10 15 20 25 30 35 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Russia BRICS Average (excluding Russia) EU11 Average Resource Rich* Average

  • 15
  • 10
  • 5

5 10 15 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Percent Total Factor Productivity Capital Labor GDP Growth

Russia’s Investment and Productivity Challenge

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How Will Russia Manage the Adjustment to Lower Oil Prices and Sanctions?

Assure technology and innovation transfer, e.g. technology that can support exploration of less accessible

  • il and gas fields.

Counterbalance restricted access to external finance, e.g. effectively invest natural resource revenues. Boost investor and consumer confidence, e.g. careful management of financial sector risks and fiscal buffers.

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SLIDE 19

Special Focus Note

The Economic Impact of Sanctions

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The Economic Impact of Sanctions on Russia

Stock market prices and trends and Exchange rate dynamics, Euro-Dollar basket

10 30 50 70 90 110 1200 1300 1400 1500 1600 1700 1800 1900 Trade volume, bln Rub (right axis) MICEX index

35 40 45 50 55 60 65 70 75 80

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The Economic Impact of Sanctions on Russia

Bond Issuance in US$ billion and Russia Corporate Emerging Market Bond Index for Russia

220 240 260 280 300 320

5 10 15 20 25 H1 2013 H1 2014 H2 2013 H2 2014

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The Economic Impact of Sanctions on Russia

Russia’s Food and Beverage Imports by Country: Q3, 2013 and 2014 (US$ billion) and Russia’s Cereal Imports by Country: Q3, 2013 and 2014 (US$ billion)

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 Q3/2013 Q3/2014

0.05 0.1 0.15 0.2 0.25 Q3/2013 Q3/2014

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SLIDE 23

Thank you!

For more information about the World Bank and its activities in the Russian Federation, please visit: http://www.worldbank.org/en/country/russia If you would like to be access our Russia Economic Reports, please visit: www.worldbank.org/eca/rer For questions and comments relating to this publication, please contact bhansl@worldbank.org.

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EXTRA SLIDES

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Baseline Scenario Projections

Main economic indicators

2012 2013 2014 2015 2016

Oil price (US$ per barrel, WB average)

105.0 104.0 97.6 53.2 56.9

GDP growth, percent

3.4 1.3 0.6

  • 3.8
  • 0.3

Consumption growth, percent

6.4 3.9 1.5

  • 5.3
  • 1.9

Gross capital formation growth, percent

3.0

  • 6.6
  • 5.7
  • 15.3

1.1

General government balance, percent of GDP

0.4

  • 1.3
  • 1.2
  • 3.6
  • 3.1

Current account (US$ billions)

71.3 34.1 56.7 73.7 62.9

percent of GDP

3.6 1.6 3.0 6.0 4.4

Capital and financial account (US$ billions)

  • 32.3
  • 56.2
  • 143.2
  • 122.1
  • 60.0

percent of GDP

  • 1.6
  • 3.0
  • 7.7
  • 10.0
  • 4.2

CPI inflation (average)

5.1 6.8 7.7 16.5 8.0

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SLIDE 26

Upper-bound Oil Price Scenario

Main economic indicators

2012 2013 2014 2015 2016

Oil price (US$ per barrel, WB average)

105.0 104.0 97.6 65.5 68.7

GDP growth, percent

3.4 1.3 0.6

  • 2.9

0.1

Consumption growth, percent

7.0 3.5 0.9

  • 3.0
  • 0.6

Gross capital formation growth, percent

1.5

  • 5.6
  • 8.2
  • 10.8

1.8

General government balance, percent of GDP

0.4

  • 1.3
  • 1.2
  • 2.8
  • 2.1

Current account (US$ billions)

71.3 34.1 56.7 61.7 54.0

percent of GDP

3.6 1.6 3.0 4.5 3.5

Capital and financial account (US$ billions)

  • 32.3
  • 62.2
  • 143.2
  • 105.5
  • 48.6

percent of GDP

  • 1.6
  • 3.0
  • 7.6
  • 7.7
  • 3.1

CPI inflation (average)

5.1 6.8 7.7 14.0 7.0

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SLIDE 27

Lower-bound Oil Price Scenario

Main economic indicators

2012 2013 2014 2015 2016

Oil price (US$ per barrel, WB average)

105.0 104.0 97.6 45.0 50.0

GDP growth, percent

3.4 1.3 0.6

  • 4.6
  • 1.0

Consumption growth, percent

6.4 3.9 1.5

  • 6.6
  • 2.7

Gross capital formation growth, percent

3.0

  • 6.6
  • 5.7
  • 17.1
  • 0.4

General government balance, percent of GDP

0.4

  • 1.3
  • 1.2
  • 4.5
  • 2.6

Current account (US$ billions)

71.3 34.1 56.7 83.1 79.7

percent of GDP

3.6 1.6 3.0 7.1 5.8

Capital and financial account (US$ billions)

  • 32.3
  • 62.2
  • 143.2
  • 130.2
  • 79.7

percent of GDP

  • 1.6
  • 3.0
  • 7.6
  • 11.1
  • 5.8

CPI inflation (average)

5.1 6.8 7.7 17.5 9.0

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SLIDE 28

Russia’s Diverging Growth Performance

Quarterly GDP growth, percent, y-o-y

  • 12
  • 8
  • 4

4 8 12 OECD Oil-exporters Russia OECD EU Emerging Other Emerging