Transcript Bogetic Slides - Carnegie Endowment for International Peace

Prospects and
Reform After the
Great Recession
Zeljko Bogetic
Lead Economist and Coordinator for Economic Policy for
Russia
Presentation based on the Russian Economic Report No. 21
(www.worldbank.org/ru)
Carnegie Endowment for International Peace
Washington D.C.
May 4, 2010
I.
The nascent recovery: Russia and
the world
II. Russia’s economic and social
outlook for 2010-2011
III. Some lessons
IV. Prospects for reform and growth
RUSSIA’S SCORECARD DURING THE GREAT RECESSION
RUSSIA: THE SCORE CARD OF THE GREAT RECESSION
2008
GDP Growth %
Industrial growth
Unemployment
Fiscal balance
Public debt % GDP
Inflation
Poverty
Real wage growth
International reserves (billions USD) (eop)
5.6
2.1
7.8
4.0
2.0
13.3
12.6
11.5
427.1
2009
-7.9
-10.8
8.2
-6.2
3.2
8.8
14.1
-2.8
425.0
In 2009, global recovery led by strong growth in
emerging and developing countries
Industrial production
y/y annual growth, seasonally adjusted volumes
20
15
10
5
0
-5
Russia
-15
-20
Developing excl. China, Russia
China
High Income Countries
2007M11
2007M12
2008M01
2008M02
2008M03
2008M04
2008M05
2008M06
2008M07
2008M08
2008M09
2008M10
2008M11
2008M12
2009M01
2009M02
2009M03
2009M04
2009M05
2009M06
2009M07
2009M08
2009M09
2009M10
2009M11
2009M12
-10
Sources: Thomson Datastream and World Bank
Global growth momentum is reflected in the
rebound of external trade
Merchandise import volumes
200
Percent change, rolling 3m/3m, seasonally adjusted annualized rates
Developing Countries, excl. China, Russia
150
High Income Countries
Russian Federation
100
50
0
-50
-100
China
Capital flows started 2010 on a firm note,
boosted by a surge in bond issuance
Gross capital flows to developing countries
2008
$ billion
H1
Total
H2 Total
Jan
H1
258
132
390
24
Bonds
53
12
65
9
36
Banks
151
106
257
9
Equity
54
14
68
6
61
29
90
10
Bonds
17
3
20
5
15
E. Europe
99
57
157
4
Bonds
27
7.7
35
69
29
7
28
Lat. America
Asia
Bonds
Others
2010
2009
H2
110 243
Dec Total
Jan
47
353
33
80
7
115
21
43
86
29
128
5
32
77
11
109
7
37 100
21
137
8
47
5
62
7
22
50
8
72
13
2
13
20
1
33
7
98
9
44
78
15
122
11
0
7
2
6
10
0.1
16
7
17
45
1
7
14
2
21
0.2
Sovereign CDS spreads have come down
significantly
600
500
Sovereign CDS spreads on a 5 year sovereign
bonds in basis points
Brazil
Hungary
Poland
Russia
Turkey
400
300
200
100
0
Oil market fundamentals are tightening but oil prices
expected to remain stable.
Policy challenges at the global level
• The outlook remains clouded by uncertainties and the
challenge of unwinding the stimulus
• Tighter financial conditions, lower levels of finance than
before the crisis
• Countries may seek to insulate themselves from global
financial markets and increase the role of domestic and
regional alternatives
Russia’s nascent recovery
After a 7.9 percent contraction in 2009, recovery under way.
The industrial production, however, is lagging behind the
recovery in GDP
Labor hoarding has moderating the loss of employment
An increase in part-time employment and involuntary vacations as a
temporary adjustment.
Figure 1.4: Involuntary vacations and part-time employment, thousands
Involuntary vacations and part time employment,
thousands
1,200
1,062
1,000
944
846
800
567
397
534
1000
600
699
584
462
342
200
1200
800
600
400
887
Dynamics of part-time employment, 2009
200
203
0
400
0
2004
2005
2006
Part time workers
2007
2008
2009
Vacation by employer's request
But unemployment remains high, especially among young
males in cities
Figure 1.5: Dynamics and structure of unemployment
The recession seems to have had some equalizing impact
on measured income distribution
But wage adjustments in 2008-09 seem to have reduced
inequality in the overall wage distribution.
Figure 1.6: Growth incidence curve, 2005-2009
Source: ROSSTAT; World Bank staff estimates.
More flexible exchange rate, easing of monetary
conditions, but no significant lending
Figure 1.9: Lending rates and inflation in Russa Figure 1.10: Stock of credits to companies
2006–09
and housholds in 2007–09
Russia: Policy Rate, Loan Rate, and Inflation
11000
%
9000
7000
5000
3000
Credit to households in rubles and foreign currency, bln rubles
Credit to companies in rubles and foreign currency, bln rubles
Source: CBR; World Bank staff estimates.
Oct-09
Dec-09
Jun-09
Aug-09
Apr-09
Feb-09
Oct-08
Dec-08
Jun-08
Aug-08
Apr-08
Feb-08
Oct-07
Dec-07
Jun-07
1000
Aug-07
CPI (%YOY)
Feb-07
Policy Rate (%)
Apr-07
Loan Rate (%)
Dec-06
18
16
14
12
10
8
6
4
2
0
13000
Fiscal policy––benefitting from the oil price
recovery and buoyancy of VAT revenues
Table 1.6: Consolidated budget:
revenues, expenditures, and the fiscal surplus, 2007-09
Consolidated budget*
Revenues, % GDP
Expenditure, % GDP
Surplus, % GDP
Non-oil balance, % GDP
Federal budget
Revenues, % GDP
Expenditure, % GDP
Surplus, % GDP
Non-oil balance, % GDP
Source: Ministry of Finance, Economic Expert Group .
2007
2008
2009
40.2
34.1
6.1
-2.9
38.5
33.7
4.8
-5.8
34.4
40.6
-6.2
...
23.6
18.1
5.4
0.6
22.3
18.2
4.1
-6.4
18.8
24.7
-5.9
-13.5
II. Economic and Social Outlook
for Russia, 2010-2011
Table 1.7: Outlook for Russia, 2010-2011
World growth, %
Oil prices, average, USD/bbl
Russia
GDP growth, %
Consolidated government balance, %
Current account, USD bln.
Capital account, USD bln.
Source: World Bank projections.
2010
2.7
76.0
2011
3.2
76.6
5.0-5.5
-3.0
32
30
3.5
0.0
19
50
Growth will be predominantly driven by recovery
of domestic demand and the base effect,
reflecting a very low base of the first two
quarters of 2009
Figure 1.11: Demand sources of Russia’s real
growth, by quarter, 2008–10 (%change y-o-y)
Sources: Rosstat; World Bank staff estimates.
Figure 1.12: Sectoral sources of Russia’s real GDP
growth by quarter, 2008–10 (%change y-o-y)
Before the crisis, high GDP growth was accompanied
by moderate employment growth
But, during the crisis, most countries experienced GDP
declines and massive employment losses.
The economic recovery in 2010-11 is likely to
have a limited impact on employment growth
Government’s interventions aimed at a broader middle
class, rather than only the poor,
Figure 1.14 Projected impact of the crisis on the poverty rate, percentage
of people with income level below minimum subsistence, 2007-2011
Source: World Bank staff estimates based on aggregate output forecast and household survey data on employment and incomes.
Investment climate issues: something old, something new
III. Some tentative lessons for Russia
• Prudent fiscal policy--center stage as a macroeconomic stabilization
tool
• Exchange rate flexibility helps against the backdrop of oil price
volatility
• Macro-prudential view of the financial sector
• Importance of targeted social safety nets and automatic stabilizers.
• Post-crisis world will likely require countries to do more to improve their
investment climates
• The crisis has provided an opportunity for reform and impetus to
rethink and accelerate public sector, financial sector, and diversification
reforms
Prospects for reform and growth
•
•
•
•
•
•
•
•
Fiscal adjustment
Public sector
Infrastructure
Financial sector
Social sector reform (skills)
Investment climate
Trade
Diversification and innovation
Two possible growth paths:
– Medium growth 3-4% per year
– High growth 6%
Thank you!