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The Dawn of a New Economic Era?

This report highlights the economic challenges faced by Russia in 2014, including the drop in oil prices and the impact of economic sanctions. It discusses the potential for a recession and the need for strategic policies to address these issues.

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The Dawn of a New Economic Era?

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  1. The Dawn of a New Economic Era? Russia Economic Report April 2015 | Edition No. 33

  2. Main messages 1 Russia’s economy experienced two shocks in 2014, but avoided a recession • A steep drop in oil prices, geopolitical tensions with sanctions shocked an economy already impacted by lingering structural problems. • The economy was successfully stabilized. The shocks hit the economy late in the year. Growth was 0.6 percent. • Weaker Ruble and trade restrictions revived manufacturing activity. 2 • The full effects of the two shocks will become evident in 2015 and likely push the Russian economy into recession. • The World Bank baseline scenario projects a contraction of 3.8 percent in 2015 and a contraction of 0.3 percent in 2016. • Two alternative scenarios with a lower- and upper-bound oil price. Growth prospects for 2015-2016 are negative 3 • The World Bank baseline outlook sees the poverty rate increasing from 10.8 percent in 2013 to 14.2 percent in 2015 and in 2016. • This would be the first significant increase since the 1998-1999 crisis due to declining income and consumption and high inflation. Achievements in shared prosperity are under threat 4 The impact of sanctions is likely to linger for a long time • New realities will have the potential to alter the structure of the economy and the ways Russia integrates with the rest of the world. • Strategic policies needed to balance old and new risks to the economy: (1) manage adjustment to the lower oil price and sanctions; (2) lessen structural growth constraints.

  3. Russia Economic Report No. 33 • Recent Economic Developments • Outlook and Risks • The Economic Impact of Sanctions

  4. Recent Economic Developments:A Year of Economic Turmoil

  5. The Tale of Two Shocks: Oil Prices and Impact of Economic Sanctions • Oil Prices and Ruble Exchange Rate in 2014

  6. → High Inflation and Declining Real Wages Dampen Consumption • Russia’s CPI inflation by components and Real wage growth, percent, y-o-y

  7. Russia’s Economy Avoided A Recession • Growth composition, percent, y-o-y

  8. → Monetary Tightening and High External Borrowing Cost Extinguish Investment • Central Banks Key Policy Rate (percent) and Russia’s CDS spreads (bps) for 5 year bonds

  9. Russia’s Economy Avoided A Recession (2) • Growth composition, percent, y-o-y

  10. → Tradable Sector Becomes Main Growth Engine • Contribution to GDP Growth By Sector, y-o-y, percent of GDP

  11. World Bank Outlook for Russia:A Protracted Recession

  12. Global Growth Moderately Rising Global real GDP growth, percent, y-o-y

  13. Russia’s Outlook Depends on Oil Prices • Growth in Global Oil Demand

  14. Russia’s Growth Outlook is Negative • GDP growth, percent, y-o-y

  15. Real GDP Levels Fall Below 2012 • Real GDP, percent, 2012=100

  16. Shared Prosperity Achievements At Risk • Poverty and Shared Prosperity

  17. Is the Middle Class Still Growing? • Share of the Population with Per Capita Income in US$ ppp / day

  18. Russia’s Investment and Productivity Challenge Gross capital formation, percent of GDP, and Total factor productivity growth

  19. How Will Russia Manage the Adjustment to Lower Oil Prices and Sanctions?

  20. Special Focus NoteThe Economic Impact of Sanctions

  21. The Economic Impact of Sanctions on Russia • Stock market prices and trends and Exchange rate dynamics, Euro-Dollar basket

  22. The Economic Impact of Sanctions on Russia • Bond Issuance in US$ billion and Russia Corporate Emerging Market Bond Index for Russia

  23. The Economic Impact of Sanctions on Russia • Russia’s Food and Beverage Imports by Country: Q3, 2013 and 2014 (US$ billion) and Russia’s Cereal Imports by Country: Q3, 2013 and 2014 (US$ billion)

  24. Thank you! For more information about the World Bank and its activities in the Russian Federation, please visit: http://www.worldbank.org/en/country/russia If you would like to be access our Russia Economic Reports, please visit: www.worldbank.org/eca/rer For questions and comments relating to this publication, please contact bhansl@worldbank.org.

  25. EXTRA SLIDES

  26. Baseline Scenario Projections Main economic indicators

  27. Upper-bound Oil Price Scenario Main economic indicators

  28. Lower-bound Oil Price Scenario Main economic indicators

  29. How is this Crisis Different? • GDP Reaction to External Shock in 2008-2009 and 2014

  30. Russia’s Diverging Growth Performance • Quarterly GDP growth, percent, y-o-y

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