May 26, 2021: 45th Issue of the Russia Economic Report
The World Bank’s Russia Economic Report analyzes recent economic developments, presents the medium-term economic outlook, and provides an in-depth analysis of a particular topic.
COVID-19 has reversed hard-won gains in poverty reduction in the world, with the pandemic expected to push over 100 million people into extreme poverty by the end of 2021. COVID-19 is having longer-term scarring effects on productivity growth and potential output, as the erosion of business confidence further weakens investment and as human capital accumulation slows due to a deterioration in health, extended school closures, and prolonged unemployment.
Nearly all commodity prices rose in 2021Q1, continuing the marked rebound since mid-2020. The largest increase was for energy commodities, which was particularly important for Russia’s energy exports.
Activity in Russia’s two largest trading partners – the Euro area and China – shows divergent paths. Euro area activity remains vulnerable to COVID-19 resurgences, whereas China, Russia’s second-largest trading partner, continues to experience a cyclical recovery.
Russian GDP fell by 3.0 percent in 2020 compared to contractions of 3.8 percent in the world economy, 5.4 percent in advanced economies and 4.8 percent in commodity-exporting EMDEs. Several factors helped Russia perform relatively better: in recent years, Russia undertook significant macro-fiscal stabilization efforts, resulting in an improved fiscal position. A massive banking sector clean-up, together with enhanced regulation and supervision, fortified capital and liquidity buffers.
Russia’s fiscal outcomes worsened in 2020, but improved in the first quarter of 2021.
The Russian banking sector has been resilient so far, but medium-term impacts remain to be seen. Credit growth has been supported by a slow economic recovery and public credit support programs.
Employment in Russia is still below pre-pandemic levels, however the labor market began showing some signs of improvement by the end of 2020.
Russia’s average real wages increased by 1.7% between 2019 and 2020, but masked important differences across economic activities: sectors that suffered the largest employment losses also had the largest real wage losses. Real wages increased in agriculture, telecommunications, and health services, but fell in in hospitality services, construction, culture/sports/leisure activities, and commerce.
Increases in real wages do not compensate for the decline in per-capita disposable income, which in the last three quarters of 2020 was lower by 7.9%, 5.3% and 1.7%, respectively, than in the same periods of the previous year.
Although the Covid-19 crisis continues to affect Russian regions’ economic indicators to varying extents, most regions were hit by negative growth in industrial production and retail trade in 2020. The debt situation in the regions has worsened: the crisis has resulted in a budget deficit in 57 regions (compared to 34 in 2019).
Global GDP growth is forecast to recover to 4 percent in 2021 and to moderate to 3.8 percent in 2022. However, COVID-19 pandemic continues to disrupt activity across the world, casting wide uncertainty around GDP projections.
Baseline Russian GDP growth is forecasted at 3.2 percent in 2021, followed by 3.2 and 2.3 percent in 2022 and 2023, respectively. This baseline scenario assumes gradual decline in new COVID-19 cases. Global economic recovery, higher oil prices, and soft domestic monetary conditions in 2021 are expected to support a recovery to be led by household consumption and public investment.
Russia’s longer-term economic prospects will depend on boosting potential growth through promoting economic diversification, leveling the playing field for the private sector, improving governance of state-owned enterprises (SOE) to make existing SOEs more efficient and competitive, and better integrating in global value chains. A green transition could pose significant challenges for the Russian economy unless the government undertakes preemptive steps toward decarbonization.
Russia declared a national goal of halving poverty to 6.6 percent by 2030. However, even under the most generous GDP growth scenarios, it will be difficult to achieve in the absence of better targeting of poor and vulnerable people. While Russia’s social safety-nets system plays an important role in reducing poverty, it does so at a high cost: the country spends over 3 percent of GDP or US$30 billion on social-assistance programs. This level is double the global spending on social assistance of 1.5 percent of GDP and exceeds the spending in Europe & Central Asia region.
A national, targeted program providing financial assistance to people falling below a poverty threshold could be a powerful tool to achieve poverty reduction goals in a cost-effective way. Implementing the GMI program would cost about four times less than if Russia expanded its existing social safety nets system. However, this estimate depends crucially on assumptions made, such as no leakage; no behavioral response; and reasonable administrative costs. Many additional steps will be required, such as a need to unify standards and develop key systems at the national level, as well as to strengthen various program features.
Russia Economic Report 44
The World Bank, December 2020
Russia Economic Report 43
The World Bank, July 2020
Russia Economic Report 42
The World Bank, December 2019
Russia Economic Report 41
The World Bank, June 2019
Russia Economic Report 40
The World Bank, December 2018
Russia Economic Report 39
The World Bank, May 2018
Russia Economic Report 38
The World Bank, November 2017
Russia Economic Report 37
The World Bank, May 2017
Earlier Russia Economic Reports can be downloaded through the World Bank's Documents & Reports.