Russian Economic Report #28, Autumn 2012

October 9, 2012

The World Bank, Moscow

Kaspar Richter, Sergey Ulatov

Reinvigorating the Economy

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

Source: OECD, IMF, World Bank staff calculations

Quarterly GDP growth, percent

-12

-8

-4

0

4

8

12

2007 2008 2009 2010 2011 2012Russia HI OECDEU Emerg Oth. Emerg

External surpluses

Source: Rosstat, Economic Expert Group, World Bank staff calculations

Percent of GDP (LHS) and Dollar per barrel (RHS)

Fiscal surplus

Source: Economic Expert Group, Ministry of Finance, World Bank staff calculations

Percent of GDP

Strong domestic demand

Source: Rosstat, World Bank staff calculations

Contributions to growth, percent

Strong non-tradables and agriculture

Source: Rosstat, World Bank staff calculations

Growth, Jan to Jun, year-on-year, percent

Fast credit growth

Source: CBR, World Bank staff calculations

Credit growth, percent, yoy

Strong wage growth

Source: Rosstat, World Bank staff calculations

Real wage growth, year-on-year, percent

Unemployment rate at record low

Source: Rosstat, World Bank staff calculations

Percent

0.0

0.5

1.0

1.5

2.0

2.5

5

6

7

8

9

10

2009 2010 2011 2012 Aug

Total, SA Total Registered (RHS)

Poverty at record low

Source: World Bank staff calculations

Poverty projections

Weak outlook

Two oil price scenarios

Source: World Bank staff calculations

World Bank average oil price, US$ per barrel

Growth moderating

Source: World Bank staff calculations

GDP growth, percent

Economy already slowing

Source: World Bank staff calculations

Quarterly GDP growth, percent

Growth of key indicators weaker

Source: Rosstat, World Bank staff calculations

Real growth, year-on-year, 3mma, percent

Rising capacity utilization

Source: Rosstat, World Bank staff calculations

Percent

Real wage growth moderating

Source: Rosstat, World Bank staff calculations

Contribution to real wage growth, % y-o-y

External demand worse

Source: Global Economic Prospects, World Bank staff calculations

Real growth of world economy, percent

Reinvigorating the Economy

Macroeconomic Stability – Keeping inflation in check

Source: Rosstat, World Bank staff calculations

Percent, year-on-year

Building Buffers – Lowering non-oil fiscal deficit

Source: Ministry of Finance, World Bank staff calculations

Draft medium-term budget plan, percent of GDP

Building Buffers – Replenishing oil funds

Source: Ministry of Finance, World Bank staff calculations

Percent of GDP

Structural policy – wages grew faster than productivity

Source: Rosstat, World Bank staff calculations

Real excess wage growth over output per worker growth, yoy, percent

Structural policy – closing the productivity gap

Source: OECD, World Bank staff calculations

Gap in income, productivity and hours worked to US

-80 -60 -40 -20 0 20

Oth. Emerg

EU Emerg

HI OECD

Russia

Gap in GDP PC to US, %Gap in GDP Per Hour Worked to US, %Gap in GDP in Hours Worked PC to US, %

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

17

20

23

26

29

2003 2005 2007 2009 2011 2013 2015 2017

Actual Target

7

8

9

10

11

12

2003 2005 2007 2009 2011 2013 2015 2017

Actual Target

70

80

90

100

110

120

130

140

150

2003 2005 2007 2009 2011 2013 2015 2017

Actual Target

0

20

40

60

80

100

120

140

2011 2013 2015 2017

Actual Target

Thank you!