WB: Russia’s 2020 econ recession to become deepest in 11 years

MOSCOW, Jul 6 (PRIME) -- The World Bank (WB) expects Russia’s gross domestic product (GDP) to fall by 6% in 2020 due to the coronavirus pandemic, showing the deepest recession over the past 11 years, the bank’s Lead Economist for Russia Apurva Sanghi told PRIME on Monday.

“The 6% contraction of GDP that we forecast for this year is the lowest dynamics over 11 years. It is our baseline scenario,” he said, adding that the authority expects Russia’s economy to grow by 2.7% in 2021 and by 3.1% in 2022.

According to the World Bank’s report, household consumption in Russia should fall by 4.9% in 2020, and gross fixed capital investment should decrease by 8%. In April–May, the output of Russia’s processing industry should fall by 8.6%, production of mineral reserves should decrease by 8.4%, and the transport sector should shrink by 7.7%, as per calculations of WB’s economists.

Sanghi also said that the Russian government’s measures for support of the economy and people during these hard times prevented a hike in poverty. If the government didn’t react to the crisis, the share of poor population in Russia would have grown to 14.8% in 2020 from 12.3% in 2019, which is a significant increase. But if the government implements all measures, poverty should return to the level of 2019, and it is an important achievement, he said.

The monetary policy of the Russian authorities regarding the low ratio of debt to GDP, the amount of foreign exchange reserves, the amount of money stashed in the National Wealth Fund, and the floating rate of the ruble allowed the country to be in quite a good shape at the start of the crisis, he said.

“After that, the country focused on support measures that account for almost 4% of GDP, which is a relatively small amount as compared to countries with developed economies, but is at the same level as in countries with comparable income levels. Russia spent the amount of money that it could have spent without using the National Wealth Fund and without restricting capabilities for support of the economy in the future,” he said.

The June 19 decision of the central bank to cut the key rate by 1 percentage point to 4.5% was an appropriate decision taking into account the coronavirus situation.

“From the point of view of the monetary policy, we saw a reduction of the rate by the central bank, we consider it an appropriate measure given the circumstances. … The growth of fiscal stimulation in combination with the monetary policy may increase recovery dynamics,” he said.

Speaking of recovery of the Russian economy, Sanghi said that it would start in July–December 2020.

“Our baseline scenario assumes that the recovery will start in the second half of 2020. But there are scenarios that are more pessimistic, including the return of the virus and a longer lockdown, and in this situation the recovery will be delayed to the first half of next year,” he said.

Renaud Seligmann, World Bank’s country director for Russia, told PRIME that the coronavirus situation allows the Russian authorities to reform the system of social support.

“We expect 15–21% of the population to end in an unofficial employment, so they would not be able to use the support measures that were offered. This means that in spite of the measures taken, the situation opens opportunities for the government to reform the social support system,” he said.

Currently, the government spends 3.2% of GDP on social support, which doubles the world average of 1.6% of GDP, but only 0.4% goes to the poor people. There is a correlation between families with many children and poor people in Russia, so support for families with children was a step in the right direction, but that is not enough. A targeted system of social support with three main qualities should provide an adequate level of support, he said.

“First, it has to work as an automated stabilizer in good times and in bad times, like the kurzarbeit in Germany. Second, it should be integrated so that instead of improving individual programs of social support it makes lives of people and household better like the social contract that is practiced in Tatarstan does. Third, it should be financially stable and be open to scaling in the future, like it is in Brazil and in Portugal,” Seligmann said.

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