budget returned to a surplus of 0.8 per- cent of GDP. The current account surplus RUSSIAN Key conditions and expanded to US$120 billion – exceeding its 2019 level – as commodity prices in- challenges FEDERATION creased and outbound tourism remained muted. By the end of 2021, consumer Russia’s economic outlook has been rapid- price inflation had become a central con- ly overtaken by the fallout from its inva- cern, reaching 8.4 percent year-on-year Table 1 2021 sion of Ukraine. The strongest set of co- in December. The rise in inflation was a 144.1 ordinated economic sanctions, swiftly im- broad-based, reflecting a combination of Population, million GDP, current US$ billion 1775.9 posed, will severely impact Russia across robust demand for goods, increases in en- GNI per capita, Atlas method, current US$ a 10690.0 multiple dimensions. The sanctions ergy and food prices, and global supply Lower middle-income poverty rate ($3.2) b 0.3 amount to coordinated shocks to trade, ex- bottlenecks. The banking sector proved b 2.9 ternal financing, financial intermediation, resilient during the COVID-19 pandemic, Upper middle-income poverty rate ($5.5) b and confidence. The withdrawal of many with economic recovery and credit Gini index 36.0 c foreign enterprises from the Russian mar- growth helping to improve balance sheets School enrollment, primary (% gross) 104.2 c ket and a sharply deteriorated outlook will in 2021. Labor markets strengthened, too, Life expectancy at birth, years 73.1 leave Russia bereft of investment, while in 2021; the unemployment rate fell to Sources: WDI, MPO, Rosstat. pressure on households from fast-rising 4.8 percent, close to its pre-pandemic low. a/ Most recent WDI value (2020). b/ Most recent value (2020), 2011 PPs. prices and declining incomes will push The official poverty rate of 11.0 percent c/ Most recent WDI value (2019). consumption lower. A deleterious effect on by end-2021 was below year-end rates in households will, at best, only be partly off- 2020 and 2019. set by domestic policy responses. However, developments in Russia took a Due to its invasion of Ukraine Russia Looking further ahead, Russia’s pre-exist- sharp turn for the worse beginning with ing challenge of raising medium-term Russia’s invasion of Ukraine. Sanctions faces the largest coordinated economic growth sufficiently to support improved imposed on Russia severely restrict ac- sanctions ever imposed on a country. living standards for its population is now cess to international capital markets, the Russia’s economy will be hit very hard, far more daunting. Yet, given the adverse capacity to conduct international transac- with a deep recession looming in 2022. shock it now faces, this challenge is all the tions, the imports of certain goods, and GDP is expected to contract by 11.2 per- more important. access to international and fiscal reserves. Several large Russian financial organiza- cent, with little recovery in the ensuing tions were sanctioned. Sanctions have two years. Households will be deeply im- materially increased risks to banks' asset pacted by the crisis, with a projected addi- Recent developments quality, solvency, funding and liquidity tional 2.6 million people falling below the profiles, while limiting the CBR’s capacity Before the invasion of Ukraine and the to absorb shocks. national poverty line. ensuing sanctions, Russia’s economy was The imposition of sanctions has led to a recovering well. Growth in 2021 reached precipitous drop in Russian asset prices 4.7 per cent, following a 2.7 percent de- and the ruble, with the latter depreciating cline in 2020. The general government by 30 percent against major currencies. In FIGURE 1 Russian Federation / Real GDP growth and FIGURE 2 Russian Federation / Actual and projected contributions to real GDP growth poverty rates and real private consumption per capita Percent, percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 10 20 400000 18 350000 5 16 300000 0 14 12 250000 -5 10 200000 -10 8 150000 6 -15 100000 4 2 50000 -20 2019 2020 2021 2022 2023 2024 0 0 Consumption GFCF Inventories 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Export Import Stat. error Lower middle-income pov. rate Upper middle-income pov. rate GDP growth Real priv. cons. pc Sources: Rosstat, World Bank. Source: World Bank. Notes: see Table 2. MPO 35 Apr 22 response, the Russian authorities doubled will impede cross-border transactions, Households are expected to be impacted interest rates, announced a Rub 1 trillion leading to delays and cancellations. by the crisis via four channels – limited fiscal package, imposed capital controls, Announced bans and reductions in pur- access to goods and services (either be- and introduced forbearance measures and chases of Russian oil and gas are expect- cause of inflation, shortages or even ra- special regulations for financial markets ed to lead to a substantial fall in ship- tioning), falling labor incomes, asset price aimed at stemming the capital flight and ments this year, while larger slump in falls, and migrant workers likely to be easing pressure on the financial system. non-energy export volumes is expected. especially affected via falling remittances. However, the current account balance is The percentage of the population with in- expected to strengthen as the fall in ex- comes below the official poverty line (ap- ports will be more than offset by a con- proximately US$ 14/day) is projected to Outlook traction in imports. High levels of capi- increase to 12.8 percent in 2022 from 11.0 tal outflows are expected from Russia this percent in 2021 (an increase of 2.6 mil- Uncertainty over the forecasts is un- year. In 2023 and 2024, GDP growth is ex- lion people). The poverty rate using the precedentedly high, conditional on pected to rebound only gradually, at 0.6 World Bank poverty line (US$ 5.5/day) is Russia’s military actions in Ukraine and 1.3 percent respectively. expected to increase from 2.0 in 2021 to and the global response. The severe Overall, consumer price inflation is expect- 2.8 percent in 2022 (an increase of above impacts of sanctions already in place ed to rise from 9 percent in 2021 to 22 per- one million people) and practically re- are expected to drive Russia’s GDP cent in 2022, and to stay well above the main there through 2024. down by 11.2 percent in 2022, largely central bank target in the projection pe- Risks are skewed to the downside, as ad- due to a contraction in domestic de- riod. A decline in economic activity and ditional rounds of sanctions could further mand. High uncertainty, depreciation, higher expenditure needs are expected to impact Russia’s outlook. A disruption in disruptions to trade and business clo- turn the general government surplus into oil or gas receipts, or more severe dys- sures are expected to result in a 17 a substantial deficit in 2022. The adverse function in domestic financial markets, percent slump in investment. A de- impact of the shock on the financial sector could push growth lower and poverty cline in employment and real wages, makes a major credit crunch likely, while rates up. Still-low COVID-19 vaccination elevated outmigration and rising costs continued pressure on the corporates and rates and the prospect of new variants re- of living will weigh on private con- banks, combined with eroded buffers, mains another source of risk. sumption, which is expected to fall by spells a heightened risk of bank failures 8.5 percent. SWIFT and FX restrictions and systemic crisis in the sector. TABLE 2 Russian Federation / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 2.2 -2.7 4.7 -11.2 0.6 1.3 Private Consumption 3.8 -7.3 9.5 -8.5 0.5 1.3 Government Consumption 2.4 1.9 1.1 3.6 1.2 1.0 Gross Fixed Capital Investment 1.0 -4.4 7.0 -16.9 0.6 1.7 Exports, Goods and Services 0.7 -4.1 3.2 -30.9 -1.2 -0.9 Imports, Goods and Services 3.1 -12.1 16.7 -35.2 4.1 6.2 Real GDP growth, at constant factor prices 2.2 -2.5 4.6 -11.2 0.6 1.3 Agriculture 3.5 0.2 -1.3 1.0 1.0 1.0 Industry 1.5 -2.4 4.9 -8.8 0.5 0.9 Services 2.4 -2.7 4.8 -13.2 0.7 1.5 Inflation (Consumer Price Index) 4.5 3.4 6.7 22.0 13.0 8.0 Current Account Balance (% of GDP) 3.9 2.4 6.8 9.8 6.4 2.8 Net Foreign Direct Investment (% of GDP) 0.6 -0.2 -1.3 -7.5 -3.5 -2.8 a Fiscal Balance (% of GDP) 1.9 -4.0 0.8 -1.9 -1.8 -1.2 Debt (% of GDP) 14.3 20.0 17.9 19.8 20.3 20.6 a Primary Balance (% of GDP) 2.7 -3.2 1.7 -0.3 -0.1 0.5 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.3 0.3 0.2 0.3 0.3 0.3 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 3.0 2.9 2.0 2.8 2.8 2.6 GHG emissions growth (mtCO2e) 2.4 -3.6 1.1 -11.5 0.3 0.7 Energy related GHG emissions (% of total) 91.6 91.3 90.1 89.8 89.6 89.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. a/ Fiscal and Primary Balance refer to general government balances. b/ Calculations based on ECAPOV harmonization, using 2020-HBS.Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. c/ Projection using neutral distribution (2020) with pass-through = 0.87 based on private consumption per capita in constant LCU. MPO 36 Apr 22