Russian Economic Report, No. 28, Autumn 2012 : Reinvigorating the Economy
Early in the year, as the global economy was slowing and the euro area entered a recession, Russia's economy held steady. But now, as 2012 is entering its final quarter, growth is slowing. Just at a time when Russia's output levels have e...
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| Language: | English en_US |
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World Bank, Washington, DC
2017
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| Online Access: | http://documents.worldbank.org/curated/en/131711468306832128/Reinvigorating-the-economy http://hdl.handle.net/10986/26689 |
| Summary: | Early in the year, as the global economy
was slowing and the euro area entered a recession,
Russia's economy held steady. But now, as 2012 is
entering its final quarter, growth is slowing. Just at a
time when Russia's output levels have exceeded the
pre-crisis peak, the economy is settling onto a lower
trajectory, even though oil prices have stayed high. But let
us start with the strong points. The economy had a good
first half of the year. While growth was stalling in Europe
and slowing in other emerging economies, it remained steady
in Russia. Key economic indicators were near or at record
levels: the current account surplus stayed high and the
Central Bank of Russia added to its reserves, helping to
bolster market confidence. Capital outflows, long regarded
as one of the soft spots of Russia's economy, declined
in the second and third quarters of 2012 from the peaks in
the previous two quarters. Whereas many countries in Europe
are struggling with large public debt and high fiscal
deficits, Russia's federal government public debt is
close to single digit and the fiscal balance is in surplus.
Inflation and unemployment rates declined to their lowest
level in two decades. As people's purchasing power
improved and more people had jobs, fewer people were in
poverty than at any time since the beginning of the economic
transition. A challenging external environment and worsening
sentiments among businesses and consumers translate into
weak growth prospects. Excluding the crisis years of 1998
and 2009, growth in 2012 is set to decline to its lowest
rate in a decade and a half. And 2013 is unlikely to look
much better. The weak outlook means that strong,
three-pronged policy action is essential to reinvigorate the
economy. First, economic policies have to ensure stability.
The recent tightening in monetary policy was an important
step in this direction. Second, Russia has to build buffers
against the external volatility. This means replenishing the
reserve fund, moving towards inflation targeting and
strengthening banking supervision. Finally, the government
has to lift the growth potential of the economy. This means
raising productivity and competitiveness, diversifying the
economy, and improving transport connectivity, as discussed
in the last section of this report, in line with its
longer-term economic policy goals. Making headway on this
agenda will enable Russia to lift growth above 4 percent and more. |
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