Russia Recent Economic Developments and Medium

download report

Transcript Russia Recent Economic Developments and Medium

RUSSIAN ECONOMIC
REPORT #18
Refocusing policy on households
Klaus Rohland
Country Director for Russia
Friday, April 3, 2009
Presentation at German Embassy
Moscow Russia, Russia
I.
Worst global crisis since WWII
II. Recent developments in Russia
III. Fiscal policy response
I. The worst global crisis since WWII
• Global demand, output, trade, industrial production
(especially manufacturing), capital flows collapsing
around the world since November 2008
• Highly synchronized, global crisis
• Trends continue in early 2009
Industrial Production, annual % change
3-month moving average, seasonally adjusted
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
Developing Countries
High Income Countries
Sources: IMF, Datastream Thomson and World Bank
2009M1
2008M10
2008M7
2008M4
2008M1
2007M10
2007M7
2007M4
2007M1
2006M10
2006M7
2006M4
2006M1
2005M10
2005M7
2005M4
2005M1
Russia
Global Economic Outlook for 2009-10: Grim
•
Real GDP growth
•
•
•
•
World trade
•
•
•
-1.7% (2009)
+2.3% (2010) (recovery possible but uncertain)
High-income countries about -2.9% (2009) and
developing countries +2.2% (2009), major
downward revisions from previous forecasts
-6.1% (2009)
+3.9% (2010)
Oil prices
•
•
USD 47.8 (2009)
USD 52.7 (2010)
[ Urals: $45 ]
[ Urals: $45 -$48]
Capital flows to developing countries drying out, oil prices
likely to remain low
Gross capital flows to emerging markets and Russia
billion US dollars
200
70
60
*Jan-2009
on
quarterly
bas is
150
50
40
100
30
20
50
10
Banks (left axis)
Bonds (left axis)
2009-Q1*
2008-Q4
2008-Q3
2008-Q2
2008-Q1
2007-Q4
2007-Q3
2007-Q2
-
2007-Q1
-
Equities (left axis)
Russia-total inflows (right axis)
Sources:
Dealogic and W orld Bank
World Bank oil price forecast
115
Nominal price of average crude (Brent, Dubai and WTI), simple
average, $/bbl
100
96.99
85
70
71.12
55
52.71
47.79
40
25
2007
2008
2009
Source: W orld Bank
2010
II. Recent Developments:Russian economy is hard hit
Table 1.1: Main macroeconomic indicators, 2003-08
2006
2007
2008
IV Q 2008
Jan-09
Feb-09
GDP growth, %
7,7
8,1
5,6
1.1***
-8.8*
-7.3*
Industrial production growth, y-o-y, %
6,3
6,3
2,1
-6,1
-16,0
-13,2
Fixed capital investment growth, %, y-o-y
16,7
21,1
9,8
-2,3
-15,5
-14,1
Federal government balance, % GDP
Inflation (CPI), % change , e-o-p
7,4
9,0
5,5
11,9
4,0
13,3
4,0
13,3
15,0
2.4**
2,6
4.1**
Current account, billion USD
95,6
76,6
98,9
8,1
n/a
n/a
Unemployment, %
Memo: Oil prices, Urals (USD/barrel)
7,2
61,2
6,1
69,5
6,3
95,1
7,1
54,9
8,1
44,2
8,5
43,1
Reserves (including gold) billion USD, e-o-p
303,7
478,8
427,1
427,1
386,9
384,1
Source: Rosstat, CBR, Ministry of Finance, Bloomberg
* Preliminary estimate by ministry of economy
** Cumulative from end 2008
*** Preliminary estimates by the WB staff
Why was the impact on Russia so strong?
•
•
•
•
•
Dependence of the economy on
–
Oil prices
–
Capital inflows
–
External borrowing by banks and enterprises
Small size of the small and medium size enterprise
sector
Narrow economic structure
Low competitiveness
Unexpectedly strong drop in world demand
Demand sources of Russia’s growth (in percent)
14.00
12.00
10.00
8.00
6.00
4.00
2.00
(2.00)
(4.00)
(6.00)
2007 Q3
2007 Q4
Consumption
2008 Q1
2008 Q2
Investment
2008 Q3
2008 Q4
Net Exports
2009 Q1*
Growth
Across-the-board, general slowdown, then
deep recession in 2009
• Both tradable and non-tradable sectors accelerated
their slowdown in Q4 with industry and
manufacturing registering sharp decline in final
months of 2008
• Dramatic deterioration in early 2009.
– Construction: -18.8% in January-February ’09
– Transport: -18.2% in January-February ’09
– Retail trade: +3.1 percent in January, but -2.4% in
February 2009
– Manufacturing: -24.1 percent in January 2009, -18.3
percent in February. The most significant decline was
registered in production of electro-technical and optical
equipment (-46.6%), other non-metal products
(-33.3%), and transport and transportation equipment
(-31%).
Labor markets—adjusting rapidly
Table 1.3.Labor productivity, Disposable Income, Wages, and Unemployment
GDP growth, %, y-o-y
Total employment, million people
2006
7.7
68.8
2007
8.1
70.5
2008
5.6
71
Q4 2008
1.1**
70.6
09-Jan
-8.8*
69.6
09-Feb
-7.3*
69.2
Employment growth, %, y-o-y
0.8
2.4
0.6
-0.3
-0.4
-0.4
Labor productivity growth, %, y-o-y
6.8
5.6
5
1.4
n/a
n/a
Real disposable income growth, %, y-o-y
13.5
12.1
2.7
-5.8
-10.2
-4.7
Real wage growth, %, y-o-y
13.3
17.2
10.3
5
1.9
0.1
Average monthly wage, USD
392
532
694
668
544
524
Unemployment (%, ILO definition, e-o-p)
7.2
6.1
6.3
7.1
8.1
8.5
Source: Rosstat.
* - preliminary estimate of the Ministry of Economy
** - preliminary etimate by the WB staff
Balance of payments—weakening due to terms of trade
shock and capital outflows
Table 1.4 Balance of payments (USD billions)
Current Account Balance
Trade Balance
Capital and Financial Account
Errors and Omissions
Change in Reserves (+ = increase)
2006
2007
2008a
94.5
139.2
11.9
1.1
107.5
76.2
130.9
85.9
-13.2
148.9
98.3
176.6
-128.4
-15.8
-45.3
Source: CBR.
a. Preliminary estimates.
Table 1.5. Net capital flows (USD billions), 2006-08
Total net capital inflows to the private sector
Net capital inflows to the banking sector
Net capital inflows to the non-banking sector
Source: CBR.
a. Preliminary estimates.
2006
41.9
27.5
14.4
2007
81.2
45.9
35.4
2008
-129.9
-57.5
-72.5
4Q 2008a
-130.5
-56.2
-74.3
Monetary-Exchange and Fiscal policy—aiming to
limit the impact of the crisis
Table 1.6. Consolidated budget of the Russian Federation
General Government (consolidated
budget)
% of GDP
2005
2006
2007
Revenues
Expenditure
Balance (surplus/deficit)
Non-oil balance
Primary non-oil balance
Financing
Drawdown from reserve fund
Domestic borrowing
Memorandum item
Stabilization funds /1
39.7
31.5
8.1
-2.1
-1
-
39.7
31.3
8.4
-2.6
-1.8
-
40.2
34.1
6.1
-2.7
-2.2
-
2008
38.5
33.7
4.8
-5.8
-5.3
-
5.6
8.7
11.7
-
Reserve fund /1
National welfare fund 1/
-
-
-
9.7
6.2
Source: Ministry of Finance; preliminary; World Bank estimates.
1/ End-of-period stock.
2009
24
32
-8
8
7
1
Percentage point change in GDP over
previous year
2008
2009
-1.7
-14.5
-0.4
-1.7
-1.3
-12.8
Outlook for Russia, 2009-10
Table 1.7. Outlook for 2009-2010
World growth, %
Oil prices, Urals, USD/brrl
GDP growth, %
Federal government balance, %
Current account, USD bln.
Net capital outflows, USD bln.
Source: World Bank projections.
2009
-1.7
45
-4.5
-7.4
31
170
2010
2.3
45
0.0
-6.0
16
90
Fraternal twins: Russia’s two crises 1997-98 and 2008-09
Box figure 1. Quarterly growth rate (year-on-year) in percentage, 1997–99 vs 2007–09
21
15
1999 Q4
1999 Q3
16
11
10
5
2007 Q4
2008 Q1
1999 Q2
2008 Q2
6
1997 Q4
2008 Q3
0
1998 Q2
1999 Q1
1998 Q1
2008 Q4
1
-5
2009 Q3
1998 Q4
2009 Q1
1998 Q3
-4
-10
2009 Q4
2009 Q2
-9
-15
2008-2009* (Left Axis)
Box figure 2. Quarterly growth of investment in
percentage, 1997–99 vs 2007–09
55
45
1998-1999 (Right Axis)
Box figure 3. Quarterly growth of net exports in
percentage, 1997–99 vs 2007–09
35
300
25
250
15
200
5
150
-5
100
-15
50
300
1998 Q4
250
1999 Q4
35
25
1999 Q3
2007 Q4
200
1999 Q1
1998 Q3
150
2008 Q1
15
1997 Q4
5
1999 Q2
2008 Q2
1998 Q1
1998 Q2
1998 Q3
1999 Q1
2008 Q3
2008 Q4
100
1999 Q2
1999 Q3
1998 Q2
-5
1998 Q4
0
2009 Q4
2009 Q1
-15
-25
2009 Q3
2009 Q2
1997 Q4 1998 Q1
2008 Q3
2007 Q4
-35
-50
2008 Q4
50
2009 Q3
2009 Q1
0
2009 Q2
-50
2008 Q1
2008 Q2
-25
-45
2008-2009* (Left Axis)
1998-1999 (Right Axis)
-100
-100
2008-2009* (Left Axis)
1998-1999 (Right Axis)
III. FISCAL POLICY RESPONSE—initially supporting
banks and enterprises
Table 2.1. Summary of fiscal anti-crisis measures—introduced in 2008 and announced for 2009
Billions of rubles
2008
Strengthening the financial
sector 785
Supporting the real economy 304
Protecting the vulnerable
Transfers to regions
Total 1089
% of GDP 2.62%
2009
Total
625
798.3
111.5
300
1834.77
4.07%
1410
1102.3
111.5
300
2923.77
6.69%
Total as a
share of
GDP
3.28%
2.50%
0.25%
0.67%
6.69%
Distribution of each policy measure
as percentage of total
2008
2009
Total
72.08%
27.92%
0.00%
0.00%
100.00%
34.06%
43.51%
6.08%
16.35%
100.00%
48.23%
37.70%
3.81%
10.26%
100.00%
Source: World Bank staff estimates, Government of Russia
Note: Excludes quasi-fiscal and monetary measures, state guarantees in the amount of 300 billion rubles planned for 2009, measures that were
planned before the crisis, such as increase in the minimum wage and indexation of pensions, as well as external crisis related lending to CIS
countries and Mongolia.
Fiscal support to the financial system
Fiscal measures aimed at the financial system—introduced in 2008 and announced for 2009
Billions of rubles
Recapitalization and other direct
support
Recapitalization of Deposit Insurance
Agency
Recapitalization of AHML1
Recapitalization of banks
Recapitalization of Rosagrolizing
Subordinated loans2
Total
2008
2009
Total
Total as a
share of
GDP
Distribution of each policy measure as
percentage of total
2008
2009
Total
335
70
405
0.96%
42.68%
11.20%
28.72%
200
60
75
0
450
785
0
0
45
25
555
625
200
60
120
25
1,005
1,410
0.48%
0.14%
0.28%
0.06%
2.31%
3.28%
25.48%
7.64%
9.55%
0.00%
57.32%
100.00%
0.00%
0.00%
7.20%
4.00%
88.80%
100.00%
14.18%
4.26%
8.51%
1.77%
71.28%
100.00%
Supporting the real economy––using direct support
and easing the tax burden
Table 2.3. Summary of “fiscal stimulus” measures aimed at supporting the real economy––introduced in
2008 and announced for 2009
Amount in RUR (billions)
Fiscal stimulus aimed at firms
Sector specific support1
Small and medium enterprises2
Export industries
Decrease in tax burden3
Fiscal stimulus aimed at
households
Purchase of housing units for
military and vulnerable groups
Labor market policies (including an
increase in unemployment benefits)
Fiscal stimulus aimed at regions
Total
Total (as a share of GDP)
220
2009
763.27
276.67
6.2
6
474.4
Total
1,035.27
328.67
6.2
6
694.4
Total as a
share of
GDP
2.35%
0.74%
0.01%
0.01%
1.58%
32
146.5
178.5
0.40%
10.53%
12.11%
11.79%
32
35
67
0.15%
10.53%
2.89%
4.43%
111.5
300
0.25%
0.67%
9.22%
24.80%
7.37%
19.82%
304
0.73%
111.5
300
1,209.7
7
2.68%
1,513.77
3.42%
3.42%
100.00%
100.00%
2008
272
52
Distribution of each policy measure as
percentage from total
2008
2009
Total
89.47%
63.09%
68.39%
17.11%
22.87%
21.71%
0.51%
0.41%
0.50%
0.40%
72.37%
39.21%
45.87%
100.00%
Note: Excludes quasi-fiscal and monetary measures. In addition to fiscal measures to support firms that amount to more than 900 billion rubles
in 2009, the government is planning to issue state guarantees of 300 billion rubles (not reflected in the budget).
Some features of fiscal support to enterprises
•
•
•
•
•
Large emphasis on tax reduction
Limited infrastructure spending
Limited support to SMEs
Limited interventions in the labor market
Potential support to “strategic enterprises
How does Russia’s fiscal stimulus compare with G-20
countries?
Box Figure 1. Estimated size of fiscal stimulus Box Figure 2. Estimated size of fiscal stimulus and
measures in G-20 countries
growth deceleration in G-20 countries
Turkey
Italy
Brazil
India
Argentina
France
Mexico
United Kingdom
Indonesia
Japan
Canada
Russia
South Africa
Germany
Australia
Spain
Korea
United States
China
Saudi Arabia
0.0%
Average annual growth deceleration in percentage
points (2008-2010)
0.00%
2008 2009 2010
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0% 10.0%
0.00%
-0.50%
Italy
0.50% Indonesia 1.00%
Canada
Mexico
France Japan
Brazil
-1.00% Turkey
1.50% United States
2.00%
Korea
2.50%
AustraliaSouth Africa
Germany
India
United Kingdom
Spain
-1.50%
China
-2.00%
Argentina
-2.50%
Russia
-3.00%
Average annual size of fiscal stimulus as a percentage of GDP (2008-2010)
Source: Data for non-Russia G-20 countries, IMF (based on packages announced through late February). The figures do not include (i)
below-the-line operations, (ii) measures that were already planned for, (iii) banking-sector support measures. Estimates of planned
expenditures for 2010 are not available for Russia, Argentina, India, Mexico, and South Africa.
Social impact—spreading fast
Figure 2.2 Projected loss of employment in Russia in 2009
0
2
0
100
Loss in employment, % change (top bar)
4
6
8
10
12
14
16
Manufacturing
Construction
Retail
Agriculture
Other
200 300 400 500 600 700 800
Loss in employment, thosands (bottom bar)
900 1000
Projected amount of poor people before and after the
crisis (in millions), 2008-09
25.00
20.00
15.00
10.00
5.00
0.00
2008
2009
ADDITIONAL number of poor after the crisis
Projected number of poor before the crisis
What more can future policy do?
•
•
Adjusting the Fiscal Policy Response––targeting households,
infrastructure, and small and medium enterprises
Additional package must be:
– Fiscally affordable
– Cost efficient in alleviating poverty
– Possible to scale up through simple reforms
– Compatible with existing level social safety net mechanisms
Table 2.4. A social protection stimulus package of 1 percent of GDP, implemented in a
period from April 2009 to March, 2010 could help move 4.1 million people out of poverty
compared with a no-program scenario
Cost of the program
as a share of GDP
Child allowance
Low-end pensions
Unemployment benefits
Total
Source : World Bank estimates.
0.28
0.59
0.14
1.00%
Reduction in
poverty rate,
percentage
points
0.8
1.8
0.3
2.9
Reduction in
poverty, million
people
1.13
2.54
0.42
4.09
The additional social package is constructed so as to
maximize impact on poverty
Figure 2.6. Impact on poverty reduction for a given increase in program budget
16.00%
15.50%
poverty Rate
15.00%
14.50%
14.00%
13.50%
13.00%
12.50%
12.00%
0%
100%
200%
300%
400%
500%
% increase in benefit
Child allowances
Pensions (lowest 30%)
Unemployment benefits
Source: World Bank staff estimates.
What more? Additional modest support for infrastructure
bottlenecks and SMEs
• Supporting recovery and medium-term
growth (0.5% of GDP):
– Infrastructure bottlenecks
– SMEs
IN SUM, we propose in the short term:
• Social protection package (1% of GDP)
• Infrastructure and SMEs (0.5% of GDP)
– Over April 2009-April 2010 period.
– This could help the economy cushion the large social
impact and prepare it for a more sustained economic
recovery later on.
Back to the future: Accelerating
structural reforms
• Even during the crisis, long-term structural
reform agenda should not be forgotten.
• Critical to long-term growth.
• More competitive international business
climate and fewer resources after crisis
–
–
–
–
–
–
Banking sector modernization
Public administration and governance reform
Improving investment climate
Infrastructure
WTO agenda
Improving effectiveness and targeting of the safety
net
DOWNSIDE RISKS FOR THE WORLD ECONOMY
AND RUSSIA REMAIN
• Social impact and associated social tensions,
especially in select, vulnerable regions
• Second round effect of real economy on
financial sector
• Prolonged depression of global demand
• Therefore, policy must remain vigilant, flexible
and ready to respond quickly to changing
conditions.
• THEREFORE, In a downside scenario, well
designed and implemented public works
programs may be needed.
Thank you!