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Russian Economic Report #28, Autumn 2012 Reinvigorating the Economy October 9, 2012 The World Bank, Moscow Kaspar Richter, Sergey Ulatov MESSAGES • The economy performed well early in the year despite external headwinds. • But now the economy is slowing. • Economic policies can reinvigorate the economy by shoring up stability, building buffers against external volatility and lifting growth potential. Strong First Half of 2012 Growth steady in Russia as recovery slows elsewhere Quarterly GDP growth, percent 12 8 4 0 -4 -8 -12 2007 2008 2009 Russia EU Emerg Source: OECD, IMF, World Bank staff calculations 2010 2011 2012 HI OECD Oth. Emerg External surpluses Percent of GDP (LHS) and Dollar per barrel (RHS) Source: Rosstat, Economic Expert Group, World Bank staff calculations Fiscal surplus Percent of GDP Source: Economic Expert Group, Ministry of Finance, World Bank staff calculations Strong domestic demand Contributions to growth, percent Source: Rosstat, World Bank staff calculations Strong non-tradables and agriculture Growth, Jan to Jun, year-on-year, percent Source: Rosstat, World Bank staff calculations Fast credit growth Credit growth, percent, yoy Source: CBR, World Bank staff calculations Strong wage growth Real wage growth, year-on-year, percent Source: Rosstat, World Bank staff calculations Unemployment rate at record low Percent 10 2.5 9 2.0 8 1.5 7 1.0 6 0.5 5 0.0 2009 2010 Total, SA 2011 Total Source: Rosstat, World Bank staff calculations 2012 Aug Registered (RHS) Poverty at record low Poverty projections Source: World Bank staff calculations Weak outlook Two oil price scenarios World Bank average oil price, US$ per barrel Source: World Bank staff calculations Growth moderating GDP growth, percent Source: World Bank staff calculations Economy already slowing Quarterly GDP growth, percent Source: World Bank staff calculations Growth of key indicators weaker Real growth, year-on-year, 3mma, percent Source: Rosstat, World Bank staff calculations Rising capacity utilization Percent Source: Rosstat, World Bank staff calculations Real wage growth moderating Contribution to real wage growth, % y-o-y Source: Rosstat, World Bank staff calculations External demand worse Real growth of world economy, percent Source: Global Economic Prospects, World Bank staff calculations Reinvigorating the Economy Macroeconomic Stability – Keeping inflation in check Percent, year-on-year Source: Rosstat, World Bank staff calculations Building Buffers – Lowering non-oil fiscal deficit Draft medium-term budget plan, percent of GDP Source: Ministry of Finance, World Bank staff calculations Building Buffers – Replenishing oil funds Percent of GDP Source: Ministry of Finance, World Bank staff calculations Structural policy – wages grew faster than productivity Real excess wage growth over output per worker growth, yoy, percent Source: Rosstat, World Bank staff calculations Structural policy – closing the productivity gap Gap in income, productivity and hours worked to US Russia HI OECD EU Emerg Oth. Emerg -80 -60 -40 -20 0 Gap in GDP PC to US, % Gap in GDP Per Hour Worked to US, % Gap in GDP in Hours Worked PC to US, % Source: OECD, World Bank staff calculations 20 Structural policy – 2018 policy goals (a) Fixed investment (% of GDP); (b) High-technology and science-intensive sectors (% of GDP); (c) Labor productivity (GDP per worker; 2011=100); (d) World Bank Doing Business rank 12 29 11 26 10 23 9 20 8 7 17 2003 2005 2007 2009 2011 2013 2015 2017 2003 2005 2007 2009 2011 2013 2015 2017 Actual Target Actual 150 140 140 120 130 100 120 Target 80 110 60 100 90 40 80 20 70 0 2003 2005 2007 2009 2011 2013 2015 2017 Actual Target 2011 2013 Actual 2015 2017 Target Thank you!