THE RUSSIA ECONOMIC REPORT №36

 
Fri, 10/28/2016 - 14:15..
 
Department of Economics
 
Apurva Sanghi; Lead Economist for the Russian Federation

Apurva Sanghi, the new World Bank’s Lead Economist for the Russian Federation, gave a talk at the European University at St. Petersburg, during which he presented the World Bank’s Russia Economic Report no. 36.

The report consisted of three thematic sections: 1) the latest trends in economic development; 2) predictions concerning the development of Russia’s economy; and 3) the impact of fiscal policy on the allocation of income during times of economic expansion and recession.

Dr. Sanghi noted that global economic growth dropped in the first half of 2016 to 2.2%. This is primarily connected to low growth rates in exporting nations, as well as with the economic recession in China, one of the largest importing nations in the world. Throughout all of this, the Russian recession has also continued, although the speed of the decline of real GDP per year has slowed from -3.7% in 2015 to -0.9% in the first half of 2016. Dr. Sanghi also stated that the Russian economy has continued to adjust to low prices of oil which were caused in part by a floating exchange rate, decreasing expenditures, the recapitalization of banks, and the use of the Reserve Fund.

The World Bank has given an optimistic prediction that the Russian economy will gradually move towards growth. In 2016 the economic expansion rate is measured to be -0.6%. Since oil prices will eventually rise according to the World Bank’s predictions (up to $59.90 per barrel in 2018), the expansion rate of the Russian economy will turn positive, reaching 1.5% in 2017 and 1.7% in 2018.

However, there are still serious challenges which stand in the way of growth for the Russian economy. One of the main challenges it faces is the rising budget deficit (currently 2.6%, compared to 1.1% for the first ten months of 2015). Although Russia’s fiscal policy has been characterized by redistribution, generally adapting to decreasing inequality (thus, the Gini Index is lower when allowances are made for taxes and transfers), according to the World Bank, real income for people with mid to low incomes sharply decreased, meaning that the proportion of the population at risk (with a per capita income lower than $10 per day) increased by 8%. Other warning signs include a significant number of pensions in the transfer payment system as well as plans to completely deplete the Reserve Fund by 2017. Considering the overall demographic ageing of Russia’s population, all of the aforementioned factors make the government’s fiscal policy unstable even from a medium-term perspective.

The full version of the World Bank’s report can be found here:

http://www.worldbank.org/en/country/russia/publication/rer