Transcript Russia Recent Economic Developments and Medium

ECA REGION
AND THE GLOBAL CRISIS
PRODUCTIVITY AND THE HUMAN FACTOR
Klaus Rohland
Country Director for Russia
Europe and Central Region
The World Bank
Higher School of Economics Conference
April 7-9, 2009
Moscow, Russia
Outline of the presentation
I.
II.
III.
IV.
The global outlook
The impact on the ECA region
The impact on Russia
What should policy do now?
I. World Bank’s Global Outlook for 2009-10
•
Real GDP growth
•
•
•
World trade
•
•
•
-1.7% (2009)
+2.3% (2010) (recovery possible but
uncertain)
-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
World Bank oil price forecast
billion US dollars
Nominal price of average crude (Brent, Dubai and WTI), simple
average, $/bbl
200
70
115
60
*Jan-2009
on
quarterly
basis
150
50
40
100
100
96.99
85
30
20
50
10
71.12
55
52.71
47.79
Banks (left axis)
Bonds (left axis)
2009-Q1*
2008-Q4
2008-Q3
2008-Q2
2008-Q1
2007-Q4
2007-Q3
2007-Q2
-
2007-Q1
-
70
Equities (left axis)
Russia-total inflows (right axis)
Sources: Dealogic and World Bank
40
25
2007
2008
2009
Source: World Bank
2010
II. The impact on the ECA region
Crisis impact in ECA: early and severe
— concern that progress will unravel
Recession at best U-shaped— address the urgent
but keep sight of the important
— question on future growth model in ECA
Looming human crisis
Progress and Vulnerability
Rapid growth,
sudden
reversal,
5-10% decline
likely
Non-Poor: Above
$5.00 a Day
202
Poverty
halved, but
almost 40%
poor or
vulnerable
294
173
Vulnerable:
$2.50 to $5.00 a
Day
Poor: Below
$2.50 a Day
135
103
1998-99
48
2005-06
Source: World Bank staff estimates.
(in millions)
6
Crisis Impact
For now, ECA hit harder — Financial markets

Excess borrowing by corporates and households


High share of foreign exchange denominated borrowing


120
160
100
140
80
Loans to deposits ratios in ECA range from 100% for Czech Republic to 278%
for Latvia (in Dec. 2008)
in 2008, FX loans/total loans ratios more than 50% for many countries (e.g.,
Bulgaria, Croatia, Estonia, Hungary, Latvia, Lithuania, and Romania)
Corporate debt levels require high rollover rates
Nominal
Exchange
Rateindex,
Exchange
rates/USD
Stock
market
LCU
median values for each region
EU10 floating EXR
MI CIS
Turkey
Emerging Asia
Latin America
Exchange rate
Severe
losses
in
depreciations
High
exposure
of foreign
banks
ECA markets
stocktobeen
markets
have
unusually large
60
120
40
100
20
EU10
MI CIS
Turkey
Emerging Asia
Latin America
0
80
2008M01
Jan-08
2008M04
Apr-08
2008M07
Jul-08
2008M10
Oct-08
2009M01
Jan-09
7
Crisis Impact
For now, ECA hit harder — Product markets
Industrial Production Index
(seasonally adjusted)
135
125
In Q4 2008 output
shrank back to
2005 levels
115
105
LAC
ECA
East Asia excluding China
2008M12
2008M11
2008M10
2008M9
2008M8
2008M7
2008M6
2008M5
2008M4
2008M3
2008M2
2008M1
95
South Asia
MNA
Source: World Bank staff estimates.
Exports and Imports, % yoy change, 2009 (f)
Contraction in
trade in 2009
4%
3
2
1
0
-1
-2
-3
-4
-5
-6
EAP
ECA
LCR
Exports
MNA
Imports
Source: World Bank staff estimates.
SAR
AFR
8
Crisis Impact
For now, ECA hit harder - Labor markets
(% )
5.0
Change in Unemployment Rates, Latest Available to One
Year Earlier
4.6
Fewer jobs, labor
markets expected
to weaken further
3.0
2.2
1.5
0.8
1.0
0.2
0.2
0.1
-1.0
Latvia
Turkey
Russia
Ukraine
Hungary Kazakhstan Armenia
Note: January 2009 unemployment data or latest available.
Source: World Bank staff estimates.
Growth of migrants' remittances
(y/y % change)
35
30
25
Declining
growth in
remittances
20
15
10
5
0
-5
2005
Global
2006
*Projection. Source: DECPG.
ECA
2007
2008*
2009*
9
Human Crisis?
Looming human crisis
• Continuing downward revision of growth projections but
worse still to come
• Declines in real incomes as currencies depreciate: in H2
2008 Hungary (-30%), Poland (-40%) Turkey (-25%)
Ukraine (-70%)
• Unprecedented job losses: 1 percentage point a month
in some countries (Latvia, Estonia, Russia, Turkey,
Ukraine)
• Rapid increase in wage arrears (Russia, Ukraine)
• Low income CIS countries particularly vulnerable: return
of migrants and declining remittances
• Weak social service delivery mechanisms stretched to
limit
• Protests in Bulgaria, Latvia, Lithuania, Hungary,
Romania, Ukraine
• Societies may be unable to absorb large salary
adjustments as required in some programs
10
Human Crisis?
Looming human crisis
—poverty and vulnerability rising
$2.5 a Day Poverty Rate Projections (%)
9
8
8.0
7.7
7.8
8
7
6.9
7.1
By end-2010, 2.6
percentage point
increase in poverty
(12 million people
back in poverty)
6.8
7
6.2
6
6
5.2
5
5
4
2007
2008
Pre Crisis Projection
2009
2010
January Projections
Current Projections
Source: World Bank staff estimates.
36
34
$5 a Day Poverty and Vulnerability
Projections (%)
33.5
32
32.4
30.5
30.8
30
By end-2010, 7.1 percentage
point increase in poor or
vulnerable (34 million people
back to poverty or vulnerability)
32.1
29.4
28
27.4
26
25.0
24
22
2007
2008
Pre Crisis Projection
2009
2010
January Projections
Current Projections
Source: World Bank staff estimates.
11
III. The impact on 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
Russia’s Labor markets—adjusting rapidly
Table 1.3.Labor productivity, Disposable Income, Wages, and Unemployment
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
GDP growth, %, y-o-y
Total employment, million people
Source: Rosstat.
* - preliminary estimate of the Ministry of Economy
** - preliminary etimate by the WB staff
RUSSIA: 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
RUSSIA: 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
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
Strengthening the financial
sector
Supporting the real economy
Protecting the vulnerable
Transfers to regions
Total
% of GDP
2008
2009
Total
785
304
1089
2.62%
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.
Addressing the human crisis in Russia:
Shifting policy focus to households
•
Win-win proposal:
– strengthens safety net during crisis
– smart macro policy—supports domestic consumption
•
Affordable and efficient
– With moderate additional spending (1% of GDP), if well targeted,
it is possible to substantially alleviate the social impact
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
Child allowance
Low-end pensions
Unemployment benefits
Total
Source : World Bank estimates.
Cost of the program Reduction in Reduction in
as a share of GDP poverty rate, poverty, million
percentage
people
points
0.28
0.8
1.13
0.59
1.8
2.54
0.14
0.3
0.42
1.00%
2.9
4.09
What should policy focus on now?
– Urgent for short-term social stability
• protecting the poor and vulnerable
– Important for long-term productivity growth
• investing in human capital (health and education
reform)
• eliminating worst infrastructure bottlenecks
• Supporting SMEs
• Accelerating structural reforms (banking sector,
investment climate etc.)