International
From Crisis to Recovery
By World Bank 24/6/09
Jun 27, 2009 - 10:03:43 AM

The global recession has deepened, with larger than expected declines in output and employment in many countries, Russia included, according to the World Bank's Russian Economic Report No. 19, launched on June 24, 2009 in Moscow. Global output is now expected to decline a full 2.9 percent in 2009, with high-income countries hit hardest.

   * Global output is expected to decline full 2.9 percent in 2009, with high-income countries hardest hit.
    * Russia’s real GDP is likely to contract about 7.9 percent in 2009.
    * Unemployment could rise to 13 and poverty to 17.4 percent by year end. Russian middle class measured by household consumption is likely to shrink by about 10 percent.
    * External environment for Russia will continue to be difficult over the next 18 months.


A guest speaker at the launch event, Elliot Riordan, a World Bank Senior Economist, added commentary based on the recent Global Development Finance report. He stated that the U.S. developments are encouraging, China and East Asia appear to be stepping up growth, and there are bits of positive news from Europe and Japan. However, he added that there are tensions in the global outlook associated with a possible second round of impacts of the financial sector on the real economy.

According to the Russian Economic Report No. 19, the impacts on the real economy and the social sector on Russia were also larger than anticipated just a few months ago. Russia's real GDP in 2009 is likely to contract to about 7.9 percent in 2009. Unemployment could rise to 13 percent, and poverty to 17.4 percent by year's end. And Russian middle-class, measured by household consumption, is likely to shrink - by about 10 percent - from 55.6 percent to 51.2 percent (a decline of 6.2 million people).

But the large stimulus package, the gradual recovery of oil prices, and lower inflation could bode well for the second half of the year, and the Russian economy could return to modest growth in 2010. However, given the weak global demand, external environment for Russia will continue to be difficult over the next 18 months.

"The road to recovery - at the global level and in Russia - is likely to be slow," said Zeljko Bogetic. "The crisis has already, de facto, taken away half a decade of Russia's prosperity that would have taken place without the global crisis. Real GDP will return to pre-crisis levels only at end-2012, credit and capital inflows will be scarce, and it is hard to see oil prices returning to pre-crisis levels in the near term. In this much more constrained international environment, the importance of sound economic policies aimed at improved effectiveness of public expenditures, productivity growth, better investment climate, and diversification cannot be overemphasized."

Short-term policy emphasis continues to be warranted for social assistance to cushion the impact on the vulnerable, as well as for infrastructure and small and medium size enterprises to support economic recovery. With a more constrained financing environment for the government and the private sector in the post-crisis period, Russia should accelerate structural reforms aimed at raising productivity and improving diversification and competitiveness.

Russian Economic Report No. 19 features three parts: (i) an update on macroeconomic developments and policies, and a special-topic focus on two issues: (ii) access to essential drugs and (iii) Russia's vulnerabilities to climate change.
Highlighted

    * Economic and social deterioration in the first five months of 2009 has been deeper than expected just a few months ago. Real GDP is estimated to have dropped by more than 10 percent, unemployment reached close to 10 percent, and the poverty rate rose dramatically. But the recent rise in oil prices provided some windfall to Russia's export and budget revenues, capital account, as well as its oil and gas dominated stock market.

    * Given a much larger GDP contraction in the first two quarters of 2009 than anticipated, Russia's economy is now likely to contract by 7.9 percent in 2009, despite higher oil prices assumed in the current forecast. Most of the adverse impact in Russia is concentrated in the first two quarters of 2009. Depressed export demand, tight credits, declining investment, and compressed consumption will remain the major factors of output contraction this year. The speed of the subsequent recovery in Russia will likely be slow, dependent on the revival of the global demand and global financial system.

    * Looking into the medium term, with the current growth profile, real GDP levels in Russia will reach the pre-crisis high only at the end of the third quarter of 2012. Thus, economic recovery is likely to be very gradual and prolonged.

    * The financial crisis has significantly worsened not only poverty, but also the entire income distribution in Russia. A deeper-than-expected drop in real GDP of 7.9 percent in 2009 is causing huge changes in the composition of wealth and the overall income distribution. The share of the poor will rise from 13.2 percent before the crisis, to 17.4 percent by year's-end. And the share of the vulnerable population will increase to 20.9 percent in comparison to 18.3 percent previously (an increase of 3.6 million people).

    * The Russian middle class measured in terms of household consumption is likely to shrink - by about 10 percent - from 55.6 percentto 51.2 percent (a decline of 6.2 million people).

"Despite a deeper crisis at the global level and in Russia, there is light at the end of the tunnel, and we expect that the global economy and Russia will begin to recover next year," said Klaus Rohland, World Bank's Country Director for Russia. "But there are clearly further risks from deteriorating financial sector assets and a worse-than-expected social situation."





Source: Ocnus.net 2009