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Economic Trends Globally and in Russia Odd Per Brekk Senior Resident Representative

Economic Trends Globally and in Russia Odd Per Brekk Senior Resident Representative Higher School of Economics March 5, 2013. Outline of Lecture. Global Economic Outlook and Policy Challenges Implications for Russia (I): Macroeconomic Projections and Policies

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Economic Trends Globally and in Russia Odd Per Brekk Senior Resident Representative

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  1. Economic Trends Globally and in Russia Odd Per Brekk Senior Resident Representative Higher School of Economics March 5, 2013

  2. Outline of Lecture • Global Economic Outlook and Policy Challenges • Implications for Russia (I): Macroeconomic Projections and Policies • Implications for Russia (II): Sectoral and Regional Issues

  3. The Global Economy

  4. After an across-the-board slowdown in 2012Q2, a slight improvement in activity in Q3 … Global Growth (annualized percent change from previous quarter) Q3 Source: Haver Analytics and IMF staff estimates.

  5. … but real sector indicators suggest no further strengthening in Q4 Euro Area: Real GDP Growth (annualized quarterly percent change) Global Manufacturing PMI (Index; > 50 = expansion; SA) 5 Source Markit Economics/Haver Analytics, CPB Trade Monitor, IMF.

  6. Nevertheless, financial market conditions improved throughout the second half of 2012 World Equity Markets (index; 2011=100) 10-Year Government Bond Spreads over German Bunds (basis points) Dec-12 Source: Bloomberg, L.P. and IMF staff estimates. Sources: Haver Analytics, Bloomberg Financial Markets; and IMF staff estimates. 6

  7. A gradual upturn in global growth during 2013 WEO Real GDP Growth Projections (Percent change from a year earlier) Source: IMF, World Economic Outlook.

  8. Economic Policy Priorities • Euro area: • Continue adjustment in periphery • Full deployment of European firewalls • Use flexibility offered by the Fiscal Compact • Further steps toward full banking union and greater fiscal integration • United States: • Avoid excessive fiscal consolidation in the short term (deal fully with “fiscal cliff” and debt ceiling) • Agree on a credible medium-term fiscal consolidation plan, focused on entitlement and tax reform.

  9. Economic Policy Priorities (ctd) • Japan: • More ambitious monetary easing • Adopt a credible medium-term fiscal consolidation plan, anchored by consumption tax increases • Raise potential growth through structural reforms • China: • Continue with market-oriented structural reforms • Rebalance the economy toward private consumption • EMDEs more generally: • General challenge is to rebuild macroeconomic policy space • Balance external downside risks against risks of rising domestic imbalances

  10. Implications for Russia (I) Macroeconomic Projections and Policies

  11. Russia: Macroeconomic Outlook Headline and Core Inflation (Annual rate) Quarterly GDP, Private Consumption and “Output Gap” Projected Source: Rosstat; IMF staff estimates and projections.

  12. Russia: Accounting for Past Growth Russia: Accounting for Past Growth Capital Stock Growth Rate (GDP) Labor Force Total Factor Productivity (TFP)

  13. Russia: Medium-Term Economic Policy Priorities and Outlook(Real GDP Growth in Percent) • Macroeconomic stability: fiscal and monetary policy anchors • More developed and sound financial sector • Improved investment climate

  14. Russia: Fiscal Policy Fiscal Operations of the Federal Government Fiscal Policy Stance (Percent of potential GDP) Fiscal Balance (Percent of GDP) Source: Rosstat; IMF staff estimates and projections.

  15. Russia: Monetary Policy Bank Credit Growth Interest Rates Exchange Rate and FX Interventions

  16. Implications for Russia (II) Sectoral and Regional Issues

  17. Russia has large regional inequality…

  18. … which is consistent with its income level …

  19. … and with its specialization in natural resources

  20. Not much regional convergence during 2000-10 … • Solid growth at the national level: 5-5½ percent during 2000-10 • But limited convergence of regional GDP per capita • 75 percent of regions with below average GDP per capita in 2000 have grown at sub-par rates.

  21. … and economic activity remains unevenly distributed GDP per capita in 2010 Value Added in 2010 by Russian District Rub. thousand Russian Federation Source: Rosstat

  22. Economic policies for faster convergence • Improved macro stability at the national level • Reforms to: • Improve the investment climate, particularly in lower-GDP regions • Support diversification at the regional level (smaller idiosyncratic shocks) • Enhance (further) factor mobility • Further risk-sharing through countercyclical fiscal policy at the regional level

  23. Example: WTO accession and sectoral effects Impact of WTO Accession on Output by Sector Source: Russia’s WTO Accession: What are the macroeconomic, sector, labor market and household effects? T.Rutherford, D.Tarr, 2005

  24. Example: WTO accession and regional effects Impact of WTO Accession by Region Source: IMF staff estimates based on Regional Impacts of Russia’s Accession to the WTO, T.Rutherford, D.Tarr, 2006

  25. Thank you ! Odd Per Brekk Senior Resident Representative March 5, 2013

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