Briefing Notes for the Launch in Moscow, 6 May 2010
Impact of the crisis
- The crisis had a severe impact on the Russian Federation, which given its deep economic and socio-political ties to the rest of the subregion impacted many countries. GDP growth fell by 7.9% in 2009. Owing to weak external and domestic demand, industrial production declined by 10.8% in 2009.
- By the second quarter of 2009, the economy showed some signs of recovery achieving a 7.4% GDP quarter on quarter growth rate. However, this represented a 10.9% drop compared with the second quarter of 2008.
- Investment was hit by negative sentiment, fall in corporate profitability and difficult access to credit, decrease in real wages and rising unemployment, which in turn led to a deeply negative impact on consumer demand. The decline in retail trade volume reached 5.5% in 2009.
- Inflation peaked in 2008 at 14.1% and remained stubbornly high at about 12% in 2009.
- Economic crisis resulted in a sharp decline in the current account and foreign trade surpluses in the country. The current account surplus was expected to reduce from 6.1% of GDP recorded in 2008 to 3.9% of GDP in 2009 owing mainly to the steep fall in international oil prices and a contraction in external demand. Exports and imports declined by 35.5% and 37.3% respectively in 2009. As a result, the trade surplus almost halved in 2009 to US$134 billion compared with US$200 billion registered in 2008. Hydrocarbons exports accounted of more than 60% of the total export earnings.
- The Government reacted quickly to the crisis by implementing expansionary monetary and fiscal policies aligned with that of other countries of the region and the world.
- It continued to increase expenditure on government pledges to increase social spending and to maintain financial support for large infrastructure projects. Energy-related earnings did not provide solid budget support to the Russian Federation in 2009, although the rise in oil prices in the second half of 2009 provided the Government with some additional manoeuvring space. In 2009, however, the budget was expected to record its first deficit of 5.9% of GDP since 1999.
- The Central Bank of the Russian Federation, aiming to avoid a large, uncontrolled devaluation of the rouble, maintained a nominally stable rate for the rouble against a dual-currency basket, consisting of a 55:45 dollar: euro proportion. Nevertheless in 2009, the rouble was expected to depreciate in real effective terms. Furthermore, to counteract concerns about domestic liquidity, the Central Bank cut its cash reserve requirements and expanded its refinancing operations.
Outlook and policy challenges
- A return to positive growth is expected in the Russian Federation in 2010. Strong domestic demand and increased oil and gas production should enable the economy to continue its expansion at 3.5% in 2010. However, inflationary pressures could remain due to an increase in fiscal expenditure, foreign-exchange inflows and domestic demand. The Government is expected to continue implementation of anti-crisis measures, including further tax reforms.
- Industrial output grew by 5.8% in the first two months of 2010 owing to higher oil prices and expanded domestic demand. However, the recovery is expected to remain weak due to tight credit, increases in non-performing loans and modest employment growth.
- Unemployment was on an upward trend in both 2009 and the beginning of 2010. The Government is expected to respond to the weak labour market through regional programmes to create jobs and by extending assistance with job search.