Moscow, September 15, 2011 – The risks to global growth are growing and so are risks to Russia’s growth, says the World Bank’s Russian Economic Report №26 launched today in Moscow.
Russia’s short-term economic and fiscal situation remains favorable because of high oil prices with an almost balanced budget this year. But the balance of macroeconomic risks has shifted toward an uncertain growth path as inflation pressures subside and external risks rise sharply. The large non-oil fiscal deficit requires concerted medium-term fiscal adjustment to reduce vulnerability in the face of new shocks, to replenish fiscal buffers, and to move toward a longer-term sustainable level of non-oil deficits.
With heightened external risks because of the slowdown in the United States and the European Union, the sovereign debt crisis in Europe and attendant decline in oil prices, we now expect Russia’s real GDP to grow 4 percent in 2011 (down from 4.4 percent expected in June), moderating to 3.8 percent in 2012. Although the aggregate, short-term unemployment picture is favorable–– unemployment rate stood at 6.5 percent in July––unemployment remains very high in many regions, especially in the North Caucasus federal district, reflecting investment climate and structural factors. After five years of little improvement in poverty, with more moderate growth than before the crisis, further gains in poverty will be more difficult, requiring a concerted effort at improving the effectiveness of public expenditures and the targeting of social programs.
“Downside risks to global growth and commodity prices have clearly risen,” said Pedro Alba, World Bank’s Country Director for the Russian Federation. "The dramatic mark-down to the U.S. sovereign debt ratings, lower-than-expected growth in the U.S. and in the European Union (EU) in the first half of 2011 coupled with new global market turbulence and renewed uncertainties about the European debt crisis––all reflected in lower capital flows to developing countries and higher sovereign spreads everywhere––have resulted in renewed concerns about the global outlook. Because of this worsening external environment, the outlook for Russia is revised down, too, yet Russia continues to grow at a fairly solid rate of 4 percent this year on the strength of domestic demand” .
“Despite sharply higher global risks, short-term economic and fiscal situation in Russia is favorable because of high oil prices with an almost balanced budget this year. But the balance of macroeconomic risks has shifted toward an uncertain growth path as inflation pressures subside and external risks rise sharply. The large non-oil fiscal deficit requires a concerted medium-term fiscal adjustment to reduce vulnerability to new shocks and to move toward a longer-term sustainable level of non-oil deficits,” 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. He added that “Regarding trade policy, Russia made important progress toward World Trade Organization (WTO) membership; if the remaining issues are resolved, which is within the realm of possible, membership can be anticipated in early 2012.”
“Slower growth in money supply, easing of global commodity prices, and a strong global grain harvest are currently exerting a downward, albeit seasonal pressure on food prices in Russia. As a result, CPI inflation in 2011 is likely to be lower than earlier expected—about 7.5 percent. We keep our projection for 2012 in the range of 6 to 7 percent, taking into account additional risks for inflation associated with possible monetary factors and additional fiscal spending during the election cycle.” said Sergey Ulatov, World Bank’s Economist in the Moscow office and a co-author of the Report.
“After almost five years of little improvement in poverty, with more moderate growth than before the 2008 crisis, further gains in poverty will be more difficult in Russia. This means that a concerted policy effort will be required to improve the effectiveness of public expenditures and targeting of social programs,” said Victor Sulla, who co-authored parts of the report on poverty and labor markets.
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The 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). Mikhail Matytsin (consultant-intern) authored the box on consumption and David Tarr contributed the box on WTO. Lucio Vinhas da Souza (Senior Economist) and Shane Streifel (Consultant) contributed on the international environment and the global oil market. 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.