Moscow, March 24, 2010 - Russia is likely to witness robust but relatively jobless recovery, says World Bank’s Russian Economic Report No. 21 launched today in Moscow. Reforms aimed at modernizing the public sector, strengthening the financial sector, improving the investment climate and diversifying the economy have become all the more important as a result of the crisis.
The Russian economy is likely to rebound by about 5 to 5.5 percent in 2010, followed by more moderate growth of 3.5 percent in 2011, led mainly by the revival of domestic demand.
As in most other CIS countries, job creation will be slower than the recovery in economic output. The share of long-term unemployed – those jobless for more than 12 months – increased from 27 to 33 percent during 2009, and the changing structure of unemployment indicates that those who lost their jobs during the crisis continue to have difficulties finding new jobs.
The new Report provides up-to-date analysis of Russia’s recent economic developments and policies, as well as the economic and social outlook for 2010-11, and discusses potential implications for future policy, including lessons emerging from this crisis.
Russia's output, employment, and real wage losses during the current ‘Great Recession,’ while sizable, were lower than feared early in the crisis--in part due to the large anti-crisis policy response. Though real output dropped sharply by 7.9 percent, the social impact turned out to be somewhat less than had been expected, with unemployment and poverty reaching 8.2 and 14 percent respectively. Mainly, this was due to the strong fiscal fundamentals before the crisis and large anti-crisis response amounting to 6.9 percent of GDP, which helped stabilize the financial sector, avoid a currency crisis, and assist the recovery of output and incomes.
“Russia is likely to witness robust but relatively jobless recovery in 2010-11. This means that––on the current assumptions about global outlook––a double-dip recession in Russia is not likely and recovery will be sustained, primarily driven by the revival of domestic demand––consumption and investment,” - emphasized Zeljko Bogetic, World Bank Chief Economist for Russia and the main author of the Report.
According to the Russian Economic Report No.21, there are important lessons emerging from this crisis:
- To have sound fiscal policy before and during a crisis;
- To take a macro-prudential view of the financial sector;
- To put in place stronger automatic stabilizers and targeted social safety nets;
- To avoid complacency after a crisis and continue to address long-term structural issues—improving the investment climate, modernizing the public sector, further strengthening financial sector, and improving competitiveness and diversification.
Though the global economy is expected to expand by 2.7 percent in 2010, led by emerging and developing countries, growth will be more constrained in high-income countries due to high unemployment, credit conditions and the need to unwind fiscal stimuli. Capital flows are returning to developing countries, including Russia, albeit not in the amounts seen before the crisis. Oil prices are expected to remain stable, in the $76-77 range during 2010-11, which bodes well for the stability of Russia’s export and fiscal revenues and the Russian Ruble.
“Russia’s overall anti-crisis policy response has helped the country weather the crisis. Increases in wages, pensions and unemployment benefits have cushioned the impact on the middle class and the poor. Nevertheless, certain components of the policy response could have been more effective and less costly if they had been more focused on infrastructure and targeted social assistance that are believed to have higher expenditure or employment multipliers,” said Pedro Alba, World Bank’s Country Director for Russia.
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Prepared by a World Bank team led by Zeljko Bogetic, Lead Economist for Russia and PREM Country Sector Coordinator. The RER core team members were: Sergei Ulatov (Economist), Karlis Smits (Economist), Olga Emelyanova (Research Analyst) and Victor Sulla (Economist). Annette De Kleine, and Shane Streifler (Senior Economists) contributed the box on the international environment. Sue Rutledge (Lead Private Sector Specialist) prepared the box on financial sector. The special topic note on migration was authored by Sudharshan Canagarajah (Lead Economist for Tajikistan), Matin Kholmatov, Karlis Smits, and Victor Sulla (Economists).