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Russian Economic Report 25: Securing Stability and Growth

June 8, 2011

Moscow, June 8, 2011 - The world economy has entered a "post-crisis" phase of moderate growth driven in large part by developing countries, says the World Bank's Russian Economic Report 25 launched today in Moscow. The report analyzes country's recent economic developments, prospects and challenges. It also provides short analytical notes on binding constraints to export diversification in the Russian Federation, as well as on rising food and oil prices in the Europe and Central Asia Region, including Russia.

Overall, global growth is expected to slow in 2011 - particularly for developing countries-many of which have already regained full-capacity levels of activity. Russia has seen even higher oil windfall in the past few months, which translates into likely fiscal surpluses this and next year. But economic growth will remain constrained by gradual increases in domestic demand and credit activity. As a result, we maintain the 2011 growth outlook for Russia at 4.4 percent and 4.0 percent next year, closer to the post-crisis long term potential growth. In the short-term, food and energy prices in Russia and other countries in Europe and Central Asia are contributing significantly to consumer price inflation, complicating anti-inflation policy. In the longer-term, improving productivity, innovation and competition among Russian firms will be key to export competitiveness and Russia's quest for economic diversification.

"The Russian economy is doing fairly well now with growth expected to exceed 4 percent this year. Overall labor market conditions in Russia also improved, but mostly because of the gains in the Central and North-Western Regions (that include Moscow and St. Petersburg, respectively) while unemployment in many other regions remains high with unemployment in some 20 regions exceeding 10 percent," said Pedro Alba, World Bank's Country Director for the Russian Federation.

Poverty rate was broadly flat over the past two years and 18 million Russians (13.1 percent of the population) remain living in poverty. "But while renewed growth is likely to translate into further declines in poverty in the years ahead, fighting poverty will require greater policy focus and persistence in implementing more effective and targeted programs, especially in the poorest Russian regions," said Zeljko Bogetic, World Bank's Lead Economist and Country Sector Coordinator for Economic Policy for the Russian Federation and the main author of the report.

"In Russia, with easing of international commodity prices in recent months and good harvest, inflation could decelerate to 7.5-8 percent range by end-2011 though upside risk to inflation from possible expenditure pressures will remain," said Sergey Ulatov, World Bank's Economist in the Moscow office and a co-author of the report.

"The crisis is effectively over for most developing countries as they look forward to sustained growth rates above 6 percent in each of the next three years but their medium-term growth performance will depend on structural reforms that are much more country and sector-specific," said Lucio Vinhas de Souza, Senior Economist in the DECPG group of the World Bank and a co-author of the Global Economic Prospects Report, which was launched just a day before the Russian Economic Report 25.

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This report was prepared by a World Bank core team consisting of Sergei Ulatov (Economist), Olga Emelyanova (Research Analyst), and Victor Sulla (Economist), under the direction of Zeljko Bogetic (Lead Economist and Country Sector Coordinator for economic policy for Russia and the general editor of the report). Lucio Vinhas da Souza (Senior Economist) and Shane Streifel (Consultant) contributed on the international environment and the global oil market. Paulo Correa (Lead Financial Economist) and Dragana Pajovic (Analyst) prepared the note on export competitiveness and Roumeen Islam (Economic Adviser) authored the note on energy and food inflation based on a broader study under her direction. The team expresses gratitude to the World Bank Global Economic Prospects team led by Andrew Burns (Manager, Development Prospects Group) for close collaboration and discussions on global economic environment and its links with the Russian Federation. Advice from and discussions with Pedro Alba (Country Director for Russia); Yvonne Tsikata (Director for Poverty Reduction and Economic Management in the Europe and Central Asia Region); and Benu Bidani (Sector Manager for Russia, Ukraine, Belarus, and Moldova) are gratefully acknowledged.


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