Russia Economic Report
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  • no. 40


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Russia’s Economy: Preserving Stability, Doubling Growth, Halving Poverty – How?

December 4, 2018: 40th issue of the Russia Economic Report

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Highlights

  • Russia’s goal of halving poverty to 6.6% by 2024 can be achieved, even under a modest annual growth scenario.
  • Growth prospects for 2018-2020 remain modest, forecast at 1.5% to 1.8%. Higher-than-expected oil prices could favorably affect the growth forecast.
  • A sound macroeconomic framework, with relatively high levels of international reserves ($461 billion), low external debt levels (about 29% of GDP), and comfortable import cover (15.9 months), positions Russia well to absorb external shocks.

Summary

Global growth is broadly stable, but downside risks from rising trade tensions are increasing.

Oil prices have risen this year and remain volatile as Russia’s oil production reached an all-time high. Oil prices have averaged $70/bbl in 2018 so far (up 33% from their 2017 average) and are expected to average $71/bbl over the next three years.

Growth momentum in Russia increased in the first half of 2018, supported by robust global growth, rising oil prices and a macro policy framework that has promoted stability. Real GDP growth totaled 1.3% y/y in the first quarter of 2018 and 1.9% y/y in the second.

Overall, a sound macroeconomic framework, with relatively high levels of international reserves ($461 billion), low external debt levels (about 29% of GDP), and comfortable import cover (15.9 months), positions Russia well to absorb external shocks.

Russia’s growth prospects for 2018-2020 remain modest, forecast at 1.5% to 1.8%. Higher-than-expected oil prices could favorably affect the growth forecast.

Export diversification is limited. Since 2014, Russia’s non-energy export volume growth has been outpacing that of energy and contributing to export diversification. Yet Russia’s progress in export diversification is limited, with the share of oil/gas products still totaling a high 59% in exports of goods in 2017; about 25% of fiscal revenue; and with diversification happening mainly through active (as opposed to new) lines of products.

The May Decree goal of halving poverty by 2024 could be within reach. Driven by a rebound in real wages and disposable incomes on the back of low inflation, the number of poor people decreased by 1.1 million in the first half of 2018. The poverty rate in Russia remains over 13% and is projected to average 12% over the next three years – still above the pre-crisis rate of 10.8% in 2013. However, the poverty rate target of 6.6% by 2024 could be achieved even under a modest growth scenario of 1.5% annual growth.

Taking a longer perspective, various government initiatives could double Russia’s potential growth rate to 3% by 2028, while the trinity of maintaining stability, doubling growth, and halving poverty can be completed:

  • Maintaining stability will require a high level of skill to navigate an increasingly uncertain external environment, and mobilizing additional revenues.
  • Doubling growth will require, in addition to expanding the labor force through higher retirement age, the implementation of reforms that increase inward migration, boost investment, and increase TFP growth. Increasing competition and targeted interventions in human capital that specifically build socioemotional skills and skills of the 21st century would help boost TFP growth.
  • Halving poverty will require additional – but modest – redistribution of 0.39% to 0.45% of GDP annually, through social assistance and transfers. This estimated additional redistribution assumes improving targeting from the current 20% to around 60 to 70% (in line with other countries).

Previous Russia Economic Reports

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The Russian Economy: Modest Growth Ahead

Russia Economic Report 39
The World Bank, May 2018

Download PDF | Press Release

 

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Russia's Recovery: How Strong are its Shoots?

Russia Economic Report 38
The World Bank, November 2017

Download PDF | Press Release

 

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From Recession to Recovery

Russia Economic Report 37
The World Bank, May 2017

Download PDF | Press Release

 

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The Russian Economy Inches Forward

Russia Economic Report 36
The World Bank, November 2016

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The Long Journey to Recovery

Russia Economic Report 35
The World Bank, April 2016

Download PDF | Press Release

 

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Balancing Economic Adjustment and Transformation

Russia Economic Report 34
The World Bank, September 2015

Download PDF | Press Release

 

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The Dawn of a New Economic Era?

Russia Economic Report 33
The World Bank, April 2015

Download PDF | Press Release

 

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Policy Uncertainty Clouds Medium-Term Prospects

Russia Economic Report 32
The World Bank, September 2014

Download PDF | Press Release

 

 

Earlier Russia Economic Reports can be downloaded through the World Bank's Documents & Reports.



Experts

Apurva Sanghi

Lead Economist for the Russian Federation

Media contacts

Marina Vasilieva
(495) 745-7000
Email



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INTERACTIVE DATA
The Macro Poverty Outlook is a semi-annual report, which analyses macro and poverty developments in developing countries. It is jointly produced by the Poverty & Equity and Macroeconomics and Fiscal Management Global Practices of the World Bank.
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