Russian Economic Report, April 2015 : The Dawn of a New Economic Era?
Russia's economy experienced two shocks in 2014. On top of the structural crisis that began in 2012, Russia had to deal with cyclical and idiosyncratic challenges to the economy. One of the new shocks illustrates Russia s integration into the...
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| Format: | Report |
| Language: | English en_US |
| Published: |
Washington, DC
2015
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| Online Access: | http://documents.worldbank.org/curated/en/2015/04/24348746/dawn-new-economic-era http://hdl.handle.net/10986/21781 |
| Summary: | Russia's economy experienced two
shocks in 2014. On top of the structural crisis that began
in 2012, Russia had to deal with cyclical and idiosyncratic
challenges to the economy. One of the new shocks illustrates
Russia s integration into the world economy through its
natural resource exports, and thus its dependence on the
global commodity cycle: oil prices more than halved between
July and December 2014, giving Russia a terms-of-trade
shock. The ruble lost 46 percent of its value against the US
dollar, which worsened already eroded business and consumer
confidence. The monetary tightening in response made credit
expensive, further dampening domestic demand. The other,
more idiosyncratic, shock was related to the geopolitical
tensions that began in March 2014 and led to economic
sanctions. The tensions not only heightened perceptions that
Russian investments had become riskier, they also
dramatically increased the costs of external borrowing for
Russian banks and firms. Spreads on Russian credit default
swaps peaked in December at 578 basis points, compared to
159 a year ago. Together with the financial sanctions
imposed on Russia in late July, which have restricted the
access of Russia s largest state-connected banks and firms
to Western international finance markets, this all but
extinguished investment. The current World Bank baseline
outlook, however, sees the national poverty rate increasing
from 10.8 percent in 2013 to 14.2 percent in 2015 and 2016.
Poverty is expected to increase because real disposable
income and consumption will decline. This would be the first
significant increase in poverty rates since the 1998-1999
crises. Russia weathered the 2008- 2009 crisis well as
disposable incomes continued to grow slightly. Given the
current limited fiscal space, additional support for the
poor and vulnerable is likely to be less generous than it
was during the 2008-2009 crisis. Although people at the
bottom of the income distribution are the most vulnerable,
there will be less opportunity for an increase in shared
prosperity in 2015-2016, and there is a worrisome
possibility that recent achievements might be reversed. |
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