Russian Economic Report #19 Press Conference with video cast, June 24, 2009, Moscow -> The World Bank published a new report on Russia's economic performance. The estimated decline of the economy in 2009 increased to 7.9%, a recovery of the growth to 2.5% is expected as soon as in 2010. The OECD forecasts a drop in Russia's GDP by 6.8% in 2009 and a rise by 3.5% in 2010WPS - Banks and Exchanges, Reference: All press, June 25, 2009. The WB's previous March forecast had provided for a drop in Russia's GDP by 4.5%, but was increased to 7.9% mainly due to more negative than expected results of the first quarter of 2009 (-9.5%). The Russian government considered the WB's estimate overstated in March. Now it agrees fully with the new forecast. Deputy Economic Development Minister Andrei Klepach says that after the drop of GDP by 10.2% during the five months of 2009, hitting the official target of 6-8% in 2009 would be an act of heroism. In its revised forecast, the OECD increased the estimated decline in the Russian economy to 6.8% in 2009 (5.6% in the previous forecast). However, both international institutions point out some signs of improvement of the world economy. The OECD improved the forecasts for US and Chinese economies in 2009. "Economic activity in the OECD countries has touched bottom," said Angel Gurria, the OECD Secretary General. "We expect a recovery, sometimes slow and weak." Eliot Riordan at the World Bank points to "some stabilization in the financial markets" which is seen in the drop of risk premiums and rise of capital flows to the emerging markets, as well as in the rise in prices for raw materials and fall of inflation. "The effect of budget and monetary incentives hasn't showed up yet," he adds. Both the WB and OECD expect a rise of the world economy in 2010, and Russia will be no exception. According to Andrei Klepach, even a rise of GDP by 1.5% in 2010 lies "within the statistical uncertainty" and is still indicative of the stagnation although the current official estimates range from 0.5% to -0.5%. The expectations of the international institutions are more favorable. The WB revised its estimates of Russia's GDP growth in 2010 from zero to 2.5%, and the OECD - from -0.7% to 3.5%. Both revisions are based on the expectations that prices for raw materials will not go down, and the government's economic incentives will produce effect. Besides, a fall of inflation is supposed to boost consumption: the OECD economists think inflation in Russia will fall to 8% in 2009 and to 6.5% in 2010, although the WB estimates inflation at 11-13% in 2009. According to the WB, the Russian government has at least two instruments at its disposal to speed up economic recovery. Sergey Ulatov at the WB emphasizes that a delayed approval of the budget by the government adds uncertainty and affects negatively making investment decisions by the business. The WB thinks a targeted support to low-income residents will help boost domestic demand. "In view of the current trend of economic growth and an expected rise by 3.5% in 2011 and 2012, Russia's GDP in real terms is likely to recover the pre-crisis level only by the end of the third quarter of 2012. So, a recovery of the economy will probably be gradual and protracted," says the WB. Sergey Ulatov says GDP will increase in 2010 in any case for the drop in 2009 is too steep. Social risks of the economic recession in Russia haven't yet realized in full, according to the WB: the share of the poor will increase from 13.2% before the crisis to 17.4% till the end of this year, while the middle class will reduce from 55.6% to 51.2%, and unemployment will reach 13% (9.9% in May). The WB considers people whose income is below the cost of living (about RUR 4,700) among the poor and those whose income exceeds the cost of living by 2.5 times at least among the middle class. The number of persons "exposed to poverty" or, in other words, those whose income is below the level of the middle class, but higher than the poverty line has increased from 18.3% to 20.9%, the WB writes. 15.7 million persons altogether will transfer to a lower-income social group, and Russia will go back to the level of 2004 by the number of the poor. "This is the worst scenario," Igor Polyakov at the Center for Macroeconomic Analysis and Short-Term Forecasting casts doubt on the WB's forecast. Unlike the 1998 default, the poor are protected today, he says: while the real income of individuals is falling, the rise of pensions and wages in the state-run sector exceeds inflation by 5-8%, and allowances related to the support of families having children are revised upwards. The crisis has taken its toll on the interests of the middle class - wages, bonuses, and dividends have decreased, and tangible assets have become cheaper, says Igor Polyakov. In April and May, consumption of nonfoods decreased nearly 10%, with the steepest fall in cars, jewelry, video and household appliances, and computers which all form purchases of the middle class, says Igor Polyakov. The volume of services fell drastically in May because of the decline in tourism which is also indicative of the problems with the income of the middle class. However, the savings will last the middle class half a year at least as individuals managed to benefit from the exchange rate, says Polyakov. According to his estimates, gross purchases of foreign currency account for almost a half of RUR 1.5 trillion saved over the period from January to April. Tatiana Maleva, the Director of the Independent Institute for Social Policy, says the middle class has accounted for 20% of the population in recent years, and this figure didn't increase although the middle class became richer. "Good news is that now the middle class becomes poorer, but this 20% doesn't decrease," she says. These individuals are competitive in the labor market. Their financial and property status is firm. Semiskilled office employees and workers will add to the rise of the poor which may reach 18%, Tatiana Maleva concludes. "It is not the scale of unemployment and poverty, but the duration of this state that arouses concerns," she says. Stagnant unemployment will heighten social tension, and the first step towards this has already been made: the indicators of unemployment are reducing, but those of employment don't increase, according to Tatiana Maleva. Alexander Muzafarov, an expert at the Historical Outlook Fund, says the population is less mobile now, unlike the 1998 default, "People will rather wait till a closed works starts working again than they try to find another job. They agree to a cut of wages if they only keep the current job." The poverty level will be rising as a result, he says. The middle class concentrated in large cities is showing higher interest in politics and social problems, "Formed according to the Western pattern, our middle class is learning to ask questions to the government," says Alexander Muzafarov. This activity may be used as a resource of overcoming the crisis, while neglecting it will increase political tension and redouble the crisis, says the expert. World Bank sees bad loans in Russia rising to 10% by end-2009Prime Tass June 29, 2009 - The share of non-performing loans at Russian banks may exceed 10% on average by the end of 2009, reports Prime-Tass. Citing a reports issued by the World Bank, the news agency says that at present, the share of non-performing loans at many of the country's large banks has already reached or even exceeded 8%. The World Bank also said that risks connected with repayment and refinancing of foreign debts would remain through the end of this year, reads the report. The private sector currently has to repay about $90bn of foreign debts, reads the report. Of the total, $38.4bn is owed by banks, reads the report. The World Bank believes that the Central Bank of Russia (CBR) may further cut its refinancing rate this year, reads the report. The CBR recently cut its refinancing rate to 11.5% from 12% previously, reads the report. World bank gloom on Russian economy as OECD looks for sharp reboundRussia Today The economic crisis is changing the structure of Russia's population, boosting the number of poor and cutting the middle class. It's part of the World Bank's forecast for this year - and it just got more gloomy. One fifth of the population is poor, Unemployment hitting 13%. The World Bank has lowered its outlook for Russia, saying the economy will contract 7.9 % and the recovery may take three years. Or even longer, according to Zhelko Bogetich, The World Bank's Chief economist for Russia. "The challenge is for all countries to resist the temptation towards the quick fixes of raising tariffs, to put trade barriers towards - that would result in retaliation and decline in trade flows and that alone will affect economic recovery that is already fairly weak." But there was a ray of hope from the Organization for Economic Cooperation and Development. It says - the recovery will be sharp. The group of the world's rich economies, said on Wednesday the deepest global recession in 60 years is nearing its bottom, but the recovery is likely to be "weak and fragile," with its member- economies expected to grow by less than 1% in 2010. But its Russian outlook is more optimistic - 3.7% growth next year, a sharp decline followed by a sharp recovery. Russia's registered unemployment seen at 2.6 mln people yr-endPrime Tass MOSCOW, Jun 26 (Prime-Tass) -- Russia's Federal Service for Labor and Employment expects the number of officially registered unemployed persons in Russia to amount to 2.6 million people as of the end of 2009, the service's chief Yury Gertsy told reporters Friday, ITAR-TASS reported. The service expects unemployment in Russia to increase slightly in September-December, Gertsy said. As of June 1, the number of officially registered unemployed persons amounted to 2.194 million people, according to data provided by the Healthcare and Social Development Ministry. As calculated under International Labor Organization (ILO) standards, unemployment in Russia amounted to 7.7 million people, or 9.9% of the country's labor force, as of June 1, the Federal State Statistics Service reported. Unemployment in Russia may reach 13% of the country's labor force by the end of 2009, the World Bank said earlier this week. As of May 1, Russia's population amounted to 141.9 million people, according to the statistics service. WORLD BANK REPORT ON THE OUTLOOK FOR THE RUSSIAN ECONOMYGazeta On June 24, the World Bank released its latest report on the Russian economy's prospects. As expected, it is more pessimistic than the previous report. The GDP contraction forecast for 2009 has been changed from 4.5% to 7.9%, with unemployment at 13% rather than 12%.But there are also some positive aspects ("green shoots," as the report terms them). Firstly, despite a more severe drop in GDP, the budget deficit should be less than the 8% of GDP predicted in the federal budget for 2009. According to the WB, higher oil prices (with Urals crude expected to average $50-53 a barrel this year) will ensure that Russia's budget deficit is no more than 7.2% of GDP, along with quasi-fiscal spending (that is, spending from the Reserve Fund and National Prosperity Fund). Secondly, inflation may slow from 13.3% in 2008 to 11% in 2009. Thirdly, according to the WB, contraction may give way to 2.5% growth as soon as 2010. The report predicts that the Russian economy will start picking up from the second half of 2009, after contraction peaks in May-June. Russia's GDP should regain its pre-crisis level in the third quarter of 2012. In the long-term outlook, the Russian economy is predicted to double by 2020 (relative to 2006), in line with targets set in Russia's national economic development strategy. If it weren't for the crisis, that growth would be more substantial - 250%. The greatest challenge in the years ahead will be to carry out a rational anti-crisis policy, which should lay the foundations for future economic growth. The greatest problem is the budget. With average pensions to be raised by 40% in 2010, while the common social tax will effectively not rise from 26% to 34%, it is unrealistic to expect a budget deficit of 5%. The WB report predicts a 6% deficit in 2010. The report goes on to say that the Russian government will have to resort to extensive borrowing, at home and abroad, since the Reserve Fund will be almost completely exhausted in 2009 unless oil prices rise steeply. Source: Gazeta, June 25, 2009 World Bank expects share of poor population to riseVedomosti Vedomosti, 25 Jun 2009, p.A3:- The World Bank expects that by the end of 2009 share of poor population (income around RUB 4,700 (EUR 107.77 USD 150.21)) will amount to 17.4% in Russia, against 13.2% before the crisis. Share of the middle class (income exceeds the index of poor population 2.5 times) will fall to 51.2%, against 55.6%. The unemployment level will reach 13%, against 9.9% in May 2009. According to the World Bank, the number of Russians with income below the middle class but above the poverty line totals 20.9%. The bank has already downgraded its outlook for economic recession in Russia from the previously announced 7.5% to 7.9% in 2009. Despite economic rise will restore in 2010 and will reach 2.5%, Russian economy will return to the pre-crisis level by the beginning of Q4 2012. © Esmerk |
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