Transcript Russia – The Way Out of The Economic Downturn

Economic Trends Globally
and in Russia
Odd Per Brekk
Senior Resident Representative
Higher School of Economics
March 5, 2013

Global Economic Outlook and Policy Challenges

Implications for Russia (I): Macroeconomic
Projections and Policies

Implications for Russia (II): Sectoral and Regional
Issues
The Global Economy
Global Growth
(annualized percent change from previous quarter)
Q3
Source: Haver Analytics and IMF staff estimates.
… but real sector indicators suggest no further strengthening in Q4
Global Manufacturing PMI
Euro Area: Real GDP Growth
(Index; > 50 = expansion; SA)
(annualized quarterly percent change)
5
Source Markit Economics/Haver Analytics, CPB Trade Monitor, IMF.
World Equity Markets
10-Year Government Bond Spreads over
German Bunds
(index; 2011=100)
(basis points)
Dec-12
Sources: Haver Analytics, Bloomberg Financial Markets; and IMF staff
estimates.
Source: Bloomberg, L.P. and IMF staff estimates.
6
A gradual upturn in global growth during 2013
WEO Real GDP Growth Projections
(Percent change from a year earlier)
World
U.S.
Euro
Area
3.5
2.0
-0.2
1.2
3.5
3.7
5.9
8.2
3.6
2.1
0.2
1.2
4.0
3.8
6.0
8.2
4.1
3.0
1.0
0.7
4.0
3.8
6.4
8.5
4.1
2.9
1.2
1.1
4.2
3.9
6.4
8.5
Japan
Brazil
Russia
India
China
2013
(Jan 2013
WEO)
2013
(Oct 2012
WEO)
2014
(Jan 2013
WEO)
2014
(Oct 2012
WEO)
Source: IMF, World Economic Outlook.

Euro area:
 Continue adjustment in periphery
 Full deployment of European firewalls
 Use flexibility offered by the Fiscal Compact
 Further steps toward full banking union and greater fiscal integration

United States:
 Avoid excessive fiscal consolidation in the short term
(deal fully with “fiscal cliff” and debt ceiling)
 Agree on a credible medium-term fiscal consolidation plan, focused on
entitlement and tax reform.

Japan:
 More ambitious monetary easing
 Adopt a credible medium-term fiscal consolidation plan, anchored by
consumption tax increases
 Raise potential growth through structural reforms

China:
 Continue with market-oriented structural reforms
 Rebalance the economy toward private consumption

EMDEs more generally:
 General challenge is to rebuild macroeconomic policy space
 Balance external downside risks against risks of rising domestic
imbalances
Implications for Russia (I)
Macroeconomic Projections and Policies
Headline and Core Inflation
Quarterly GDP, Private Consumption and
“Output Gap”
15
120
10
110
5
0
Projected
100
90
80
-5
Source: Rosstat; IMF staff estimates and projections.
16
14
14
12
12
10
10
8
8
6
6
4
4
2
-10
2006 2007 2008 2009 2010 2011 2012 2013
Real GDP (2008 Q2 = 100)
Private consumption (2008 Q2 = 100)
Output gap in percent, rhs scale
16
Projected
130
(Annual rate)
0
2006 2007 2008 2009 2010 2011 2012 2013 2014
Overall CPI
Core inflation (IMF estimate)
2
0
Russia: Accounting for Past Growth
Capital Stock
Growth Rate
(GDP)
Labor Force
Total Factor Productivity
(TFP)
10
9
8
7
6
5
4
3
2
1
0
25
Russia: GDP growth, labor and investment
19.7
6.4
20
15
4.8
10
5
0.6
0
2001-11
2001-08
Real GDP growth
2001-11
2001-11
Labor growth
Investment/GDP,
in percent (rhs)
8
7
6
5
4
3
2
1
0
Contributions to GDP growth (percentage points)
TFP
Labor
2001-11
Capital
2001-08
8
7
6
5
4
3
2
1
0



Macroeconomic stability:
fiscal and monetary policy
anchors
More developed and
sound financial sector
Improved investment
climate
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
-8
-8
2006
2008
Baseline
2010
2012
Adverse
2014
2016
Reform
Fiscal Policy Stance
Fiscal Balance
(Percent of potential GDP)
(Percent of GDP)
2
2
0
0
-2
-2
-4
-4
-6
-8
0
-5
-10
-8
-15
Fiscal impulse, + = stimulus
Source: Rosstat; IMF staff estimates and projections.
5
-6
2006 2007 2008 2009 2010 2011 2012 2013
Output gap
10
Projected
4
As % of GDP
4
Projected
As % of potential GDP
Fiscal Operations of the Federal Government
2006 2007 2008 2009 2010 2011 2012 2013
Overall balance
Non-oil balance
14
12
12
10
10
8
8
6
6
4
4
Overall CPI
2
0
2006
Rub.
42
CBR Target
2
2010
2012
60
38
40
20
34
-20
32
30
28
Net interventions, rhs
Basket rate
ER band
2006 2007 2008 2009 2010 2011 2012
80
60
40
40
20
20
0
0
-20
20
80
40
36
100
2006 2007 2008 2009 2010 2011 2012
2014
Exchange Rate and FX Interventions
60
-20
0
2008
Corporate
Overall
Retail
80
-40
Interest Rates
20
MIACR
15
U.S. dollar bn.
Annual rate
14
Bank Credit Growth
100
16
Annual rate
Inflation: Actual vs. Targeted
16
auction REPO
15
CBR fixed deposit
10
CBR fixed REPO
10
5
5
0
0
-60
-80
2006 2007 2008 2009 2010 2011 2012
Implications for Russia (II)
Sectoral and Regional Issues
Russia
Indonesia
Mexico
Sri Lanka
Slovak Rep.
China
Turkey
India
Hungary
Slovenia
Portugal
Czech
Austria
Belgium
Sweden
Spain
Norway
Italy
Poland
Ireland
UK
Greece
Finland
Germany
Canada
Japan
France
US
Netherlands
Australia
Korea
Average GDP dispersion
0.6
0.5
0.4
0.3
0.2
0.1
0
Net Commodity Exports to GDP (Percent)
14
12
RUS
IDN
10
NOR
8
6
AUS
LKA
4
CAN
MEX
2
IRL
KOR
0
US
-2
FIN
GRC
JPN
NLD
-4
GER
POL
SWE
UK
ESP
AUT
FRA
BEL
CZE
PRT
HUN
IND
TUR
CHN
SVN
ITA
-6
0
0.1
0.2
0.3
0.4
Average Regional GDP Dispersion, 1995-2005
(Russia data is 2000-2005)
0.5
0.6
•
Solid growth at the
national level: 5-5½
percent during 2000-10
But limited convergence
of regional GDP per
capita
 75 percent of regions with
below average GDP per capita
in 2000 have grown at sub-par
rates.
16.0
Average growth during 2000-10
•
14.0
12.0
10.0
Moscow
8.0
Tumen
6.0
4.0
2.0
0.0
75%
-2.0
0.0
1.0
2.0
3.0
4.0
Regional GDP per capita in 2000 (relative to national average)
Sources: Rosstat; and IMF staff calculations.
* 79 regions, excluding Chechen.
5.0
GDP per capita in 2010
Value Added in 2010 by Russian District
Rub. thousand
Central district
Northwest district
450
400
350
South district
300
250
North-Caucasus district
200
Volga district
150
100
Urals district
Siberia district
Far East district
Source: Rosstat
50
0
Russian Federation


Improved macro stability at the national level
Reforms to:
 Improve the investment climate, particularly in
lower-GDP regions
 Support diversification at the regional level
(smaller idiosyncratic shocks)
 Enhance (further) factor mobility

Further risk-sharing through countercyclical
fiscal policy at the regional level
-15
Non-ferrous metallurgy
Ferrous metallurgy
Chemical and oil-chemical
Truck transportation
Financial services
Telecommunications
Wholesale and retail trade
Catering
Coalmining
Gas
Post
Crude oil extraction
Oil refining and processing
Maritime transportation
Electric industry
Communal and consumer…
Railway transportation
Construction
Air transportation
Agriculture
Pipelines transportation
Timber and pulp and paper
Construction materials
Light Industry
Science
Food
Mechanical engineering
% change
Impact of WTO Accession on Output by Sector
30
25
20
15
10
5
0
-5
-10
Source: Russia’s WTO Accession: What are the macroeconomic, sector, labor market and
household effects? T.Rutherford, D.Tarr, 2005
Impact of WTO Accession by Region
7
Welfare gain as % of GRP
6
5
4
3
2
1
0
Source: IMF staff estimates based on Regional Impacts of
Russia’s Accession to the WTO, T.Rutherford, D.Tarr, 2006
Thank you !
Odd Per Brekk
Senior Resident Representative
March 5, 2013