However, a low-carbon transition will RUSSIAN pose significant challenges for the Rus- Key conditions and sian economy unless the government challenges takes preemptive steps to facilitate people FEDERATION centered low-carbon growth. Significant macro-fiscal stabilization Table 1 2020 efforts undertaken by the government before the COVID-19 pandemic have un- Recent developments P o pulatio n, millio n 144.1 derpinned Russia’s ability to effectively GDP , current US$ billio n 1486.9 respond to pandemic’s adverse social and Russia’s GDP grew strongly, by 10.5 per- GNI per capita, US$ (A tlas metho d) 10690.0 economic impacts. After providing sub- cent year-on-year, in the second quarter a 0.0 Internatio nal po verty rate ($ 1.9) stantial countercyclical fiscal stimulus and of 2021, with GDP topping its pre- a 0.4 Lo wer middle-inco me po verty rate ($ 3.2) accommodative monetary policy to sup- pandemic level. Relatively high commod- a 3.7 Upper middle-inco me po verty rate ($ 5.5) port the recovery, the authorities are now ity prices and external demand combined b 37.5 Gini index b moving to phase out the stimulus and with a robust recovery in domestic de- Scho o l enro llment, primary (% gro ss) 104.7 c 73.1 normalize Russia’s policy frameworks. mand as labor markets strengthened, Life expectancy at birth, years However, the negative effects of the pan- credit growth was robust, and elements Sources: WDI, M PO, Rosstat. (a) M ost recent value (2018), 2011 PPPs. demic on growth potential—including of social support were continued, built (b) M ost recent WDI value (2018). those stemming from learning losses, on- growth momentum this year. (c) M ost recent WDI value (2019). going restrictions on certain service activi- Russia’s third wave of COVID-19 infec- ties, and diminished migrant inflows— tions peaked in mid-July, but the inci- will require continued policy attention. dence of new cases remains elevated, and Russia’s potential growth rate has been the number of new deaths related to trending downward since the global fi- COVID-19 is close to its peak. Vaccination Russia’s economic recovery is set to ex- nancial crisis. Faster growth will hinge on rates are rising, but the share of the popu- ceed expectations this year. Rising com- the success of efforts to promote econom- lation that is fully vaccinated remains be- modity prices and buoyant external and ic diversification, reduce the state’s eco- low both the world average and the levels domestic demand has boosted the project- nomic footprint, level the playing field for of comparator countries. the private sector, and improve economic Crude oil extraction continues to be con- ed GDP growth rate to 4.3 percent. How- governance— especially as it pertains to strained by the OPEC+ production agree- ever, persistent structural constraints are state-owned enterprises. Moreover, the ment and is not expected to return to pre- expected to slow growth in 2022 and carbon intensity of domestic economic pandemic levels before May 2022. Govern- 2023. Ably navigating the global low - activity is about twice the world average, ment support programs have buoyed the carbon transition will be key to Russia’s and Russia continues to rely heavily on construction industry, retail trade was earnings from fossil-fuel exports. In 2021, supported by the economic recovery and outlook in future years and will call for Russia announced its interest in stepping new credit. High-frequency indicators for important public policy choices and eco- up international cooperation on climate the third quarter show growth moderat- nomic diversification. change, and in June 2021 a new regula- ing as the output gap narrows. The Rus- tion on greenhouse gases was approved. sian banking sector has successfully FIGURE 1 Russian Federation / Consumer price index and FIGURE 2 Russian Federation / Actual and projected inflation expectations poverty rates and real private consumption per capita Percent, y/y Poverty rate (%) Real private consumption per capita (constant LCU) 14 25 400000 12 350000 20 300000 10 15 250000 8 200000 6 10 150000 4 100000 5 2 50000 0 0 0 Jan-19 Jun-19 Nov-19 Apr-20 Sep-20 Feb-21 Jul-21 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 International poverty rate Lower middle-income pov. rate CPI Infation expectations CPI target Upper middle-income pov. rate Real priv. cons. pc Sources: Rosstat and Bank of Russia. Source: World Bank. Notes: see Table 2. Note: In April – July 2020, due to the self-isolation measures introduced by the government in connection with the spread of Covid -19 infection regular surveys of the population in the format of personal interviews were suspended. MPO 74 Oct 21 weathered the COVID-19 crisis. The bank- official poverty rate reached 14.4 percent in subsectors. Meanwhile, improved busi- ing sector’s key credit-risk and perfor- the first quarter of 2021, as the impact of ness confidence and high profits for re- mance indicators have remained largely the pandemic endured while emergency source-oriented companies will acceler- stable since the beginning of the pandem- safety-net measures were phased out. This ate investment growth. Moderate pres- ic, with an overall capital-adequacy ratio rate is not strictly comparable to the previ- sure on bank capitalization is expected in of 12.4 percent (as of August 1, 2021). ous series because of changes in methodol- the medium term, as the share of restruc- In the first half of 2021, the general gov- ogy adopted by ROSSTAT in December tured loans is high at 13 percent of all ernment registered a surplus of 2.4 per- 2020. In the second quarter, it fell to 13.1 loans. However, following the withdraw- cent of GDP compared to a deficit of 1.8 percent, driven by improvements in the al of forbearance in July, asset-quality percent deficit in the first half of 2020. labor market and new support for low- problems have now largely materialized With the removal of emergency support income households with children. and are adequately covered by reserves. measures primary expenditures dropped Rising interest rates, recent changes to by 3.8 percentage points of GDP while the subsidized mortgage-lending pro- economic rebound and higher commodi- ties prices boosted receipts from oil/gas- Outlook gram, and new macro-prudential measures are expected to help slow the sector taxes and VAT. rapid growth of retail lending (22 per- Rebounding domestic demand in a con- The GDP growth rate is expected to reach cent, year-on-year), which has been driv- text of persistent supply bottlenecks and 4.3 in 2021 before declining to 2.8 percent en by mortgages and unsecured loans. elevated global commodity prices pushed in 2022. With the output gap closing in The poverty rate at the upper-middle- the annual inflation rate to a five-year 2021, growth is expected to moderate income poverty line of US$5.5 per day is high of 6.7 percent in August, and infla- toward its trend level and reach 1.8 per- expected to decline in 2021 as the econo- tionary expectations are also elevated. cent in 2023. A continued global econom- my rebounds, but it is projected to remain These developments prompted the central ic recovery, relatively high oil prices, and above pre-pandemic levels until 2022. bank to increase interest rate by a cumula- an improved COVID situation are ex- Downside risks have intensified. With tive 250 basis points to 6.75 percent by pected to help consolidate the incipient low vaccination rates, the evolution of September 2021. recovery of domestic demand. A gradual the pandemic remains the primary The labor market has been steadily im- easing of OPEC+ restrictions by end - source of immediate risk. New sanctions proving since August 2020, and the unem- September 2022 will boost the oil sector ’s and an abrupt tightening of global fi- ployment rate fell to 4.5 percent in July output, while less-stringent COVID nancing conditions could also worsen 2021, close to its pre-pandemic level. The measures will benefit several services Russia’s outlook. TABLE 2 Russian Federation / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2018 2019 2020 2021 e 2022 f 2023 f Real GDP growth, at constant market prices 2.8 2.0 -3.0 4.3 2.8 1.8 Private Consumption 4.3 3.2 -8.6 7.8 2.5 2.0 Government Consumption 1.3 2.4 4.0 -0.9 -1.0 1.0 Gross Fixed Capital Investment 0.6 1.5 -4.3 4.2 3.6 3.2 Exports, Goods and Services 5.0 1.4 -4.3 5.3 4.9 3.0 Imports, Goods and Services 2.7 3.4 -12.0 15.9 4.2 3.7 Real GDP growth, at constant factor prices 2.8 2.0 -2.7 4.3 2.8 1.8 Agriculture 1.7 3.5 0.2 1.1 1.8 1.8 Industry 2.9 1.5 -3.2 4.2 3.6 2.2 Services 2.8 2.2 -2.6 4.6 2.5 1.7 Inflation (Consumer Price Index) 2.9 4.5 3.4 6.2 4.8 4.0 Current Account Balance (% of GDP) 7.0 3.9 2.4 5.5 4.6 2.7 Net Foreign Direct Investment (% of GDP) -1.4 0.6 -0.2 -1.1 -0.7 -0.5 Fiscal Balance (% of GDP)a 2.9 1.9 -4.0 -0.2 1.5 1.1 Debt (% of GDP) 14.6 14.7 20.4 21.1 21.2 21.4 Primary Balance (% of GDP) a 3.8 2.7 -3.2 0.6 2.4 2.0 International poverty rate ($1.9 in 2011 PPP) b,c 0.0 0.0 0.1 0.0 0.0 0.0 Lower middle-income poverty rate ($3.2 in 2011 PPP) b,c 0.4 0.3 0.4 0.3 0.3 0.3 Upper middle-income poverty rate ($5.5 in 2011 PPP) b,c 3.7 3.2 4.3 3.3 3.0 2.8 GHG emissions growth (mtCO2e) 5.4 2.4 -6.5 2.7 3.1 1.3 Energy related GHG emissions (% of total) 95.2 91.6 92.7 91.8 90.4 89.7 So urce: Wo rld B ank, P o verty & Equity and M acro eco no mics, Trade & Investment Glo bal P ractices. Emissio ns data so urced fro m CA IT and OECD. No tes: e = estimate, f = fo recast. NA (a) Fiscal and P rimary B alance refer to general go vernment balances. (b) Calculatio ns based o n ECA P OV harmo nizatio n, using 201 8-HB S.A ctual data: 2018. No wcast: 2019-2020. Fo recast are fro m 2021to 2023. (c) P ro jectio n using neutral distributio n (2018) with pass-thro ugh = 0.87 based o n private co nsumptio n per capita in co nstant LCU. MPO 75 Oct 21