Russia in the Global Economy: Challenges ahead Bikas Joshi Resident - PowerPoint PPT Presentation

Russia in the Global Economy: Challenges ahead… Bikas Joshi Resident Representative International Monetary Fund Moscow, Russia November 24, 2014

The WEO forecast has been revised down, “New mediocre” mainly on account of emerging economies (WEO Real GDP growth projections) World U.S. Euro Area Japan Brazil India China Russia 2014 (October 3.3 2.2 0.8 0.9 0.3 5.6 7.4 0.4 2014) 2014 3.6 2.8 1.2 1.4 1.8 5.4 7.5 1.3 (April 2014) 2015 (October 3.8 3.1 1.3 0.8 1.4 6.4 7.1 0.5 2014) 2015 3.9 3.0 1.5 1.0 2.7 6.4 7.3 2.3 (April 2014) 8

The WEO forecast has been revised down, What about Emerging Markets? mainly on account of emerging economies Advanced World economies EMDC EM Asia EM Lat Am EM Europe CIS 2014 3.3 1.8 4.4 6.5 1.3 2.7 0.8 Revision from -0.3 -0.4 -0.5 -0.2 -1.2 0.3 -1.5 April 2014 2015 3.8 2.3 5.0 6.6 2.2 2.9 1.6 Revision from -0.1 0.0 -0.3 -0.2 -0.8 0.0 -1.6 April 2014 8

Forecast errors in EM growth: 2011-14

Sources of Russian growth 12 10 8 Contributions to GDP growth 6 (percent year-on-year) 4 Statistical discrepancy 2 Net export 0 Inventories -2 Fixed capital formation -4 Final consumption -6 GDP -8 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2010 2011 2012 2013 2014

Domestic headwinds 16 16 7.0% 14% monthly (annualized and seasonally adj) unemployment, SA (% labor force) 12% 12 12 6.5% 10% annual real wages, y/y 8% 8 8 6.0% 6% 4 4 4% 5.5% 2% 0 0 0% -4 -4 5.0% -2% Jul-11 Jan-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jul-11 Jan-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

Demand-management policies? 2.0 TUR RUS BRA 1.5 ZAF IND 1.0 IDN PHL PER 0.5 MEX Inflation Gap ROM COL 0.0 CHL -0.5 HUN THA POL -1.0 -1.5 -2 -1 0 1 Output Gap 2014

Headwinds: Financial markets 10 1600 9 1500 8 7 1400 6 1300 5 CEMBI Russia Yield LT Sovereign Bond Yield MICEX, rhs 4 1200 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

Headwinds: Financial markets 48 75 Exchange Rate and Oil Price, 2014 46 44 85 42 40 95 38 Ruble per U.S. dollar 36 105 34 Brent oil price in dollars 32 115 30 28 January February April June August October

Russia and the world 100 Components of the Balance of Payments 50 (in billions of US$) 0 current account US$ billions capital and financial account net of change in reserves -50 increase in reserves -100 -150 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2008 2009 2010 2011 2012 2013 2014

Private sector capital flows (in USD billions) 30 banks corporates net 20 10 0 -10 -20 -30 -40 -50 -60 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014

Geopolitics and external debt 400 400 Russia: External Debt and Assets Maturity Composition of Non-Banks' Net Debt 500 (USD bn) (USD bn) 433 Long-term debt 300 300 External debt 400 Short-term debt External assets Net external debt position 200 200 300 274 234 214 200 100 100 100 63 0 0 56 0 -100 -100 Government Banks Corporations 2005 2006 2007 2008 2009 2010 2011 2012 2013 300.0 Refinancing Profile of Non-Banks 257 (USD bn) 250.0 200.0 150.0 100.0 50.0 33 24 19 19 10 9 9 0.0 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 >Q116

Geopolitics and external debt 50 45 Maturing Debt Profile and Cash in Hand of Sanctioned Corporates 40 (Billions of U.S. dollars) Cash 35 2014 maturing debt 30 2015 maturing debt 25 2016+ maturing debt 20 15 10 5 0 Sberbank VTB VEB Gazprombank RAB Novatek Rosneft 700 700 Currency Structure of Marketable Corporate Debt CBR Reserves and External Debt Amortization 600 600 (Billions of U.S. dollars) Other 500 500 6% Banks EUR 9% Government 400 400 Corporates 300 300 USD 51% 200 200 RUB 34% 100 100 0 0 Reserves 2014 2015 >2016

Monetary policy: extraordinary times 55 12 US $ / Euro Basket Rate 8 50 4 45 0 40 -4 35 -8 FX intervention, billions $ ► 30 -12 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14

Monetary policy considerations Monetary policy stance Role of flexible exchange rates Operationalization of inflation targeting framework Liquidity measures? Emphasis on financial stability

Financial sector developments Containing risks. Encouraging intermediation 50 50 60 60 Credit growth, y/y Drivers of retail credit growth Car loans Mortgage loans 50 50 40 40 Other housing households loans Unsecured 40 40 loans 30 30 total 30 30 18 20 20 14 20 20 corporates 10 10 12 10 10 0 0 0 0 Jul-11 Jan-12 Jan-13 Jan-14 Jan-11 Jul-12 Jul-13 Jul-14 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

Developments in deposits 35 35 50 50 Deposit growth, y/y Household deposits adjusted for ER changes, growth y/y 30 30 40 40 Ruble deposits 25 25 30 30 Rub and FX deposits 20 20 20 20 Total 15 15 11 10 10 5.6 10 10 FX deposits 3.9 Rub deposits 7 0 0 5 5 - 4 0 0 -10 -10 Jan-11 May-12 May-13 May-14 May-11 Sep-11 Jan-12 Jan-13 Jan-14 Sep-12 Sep-13 Sep-14 Jan-11 May-11 Sep-11 May-12 May-13 May-14 Jan-12 Sep-12 Jan-13 Sep-13 Jan-14 Sep-14

Banking sector 8 8 12 12 Interest rates, percent Overdue loans, percent of total loans credit to corporates up to 1 year 10.6 7 7 10 10 Retail 8.2 8 8 6 6 5.8 Total interbank overnight rate 6 5.7 6 5 4.7 5 Corporate household deposits up to 1 year 4.2 4 4 4 4 2 2 3 3 Jan-12 Jan-13 Jan-14 Jan-11 May-11 Sep-11 Sep-12 Sep-13 Sep-14 May-12 May-13 May-14 Jan-11 Jan-12 Jan-13 Jan-14 Jul-11 Jul-12 Jul-13 Jul-14

Fiscal policy challenges Fiscal rule remains an important anchor Risks to the fiscal outlook 15 15 Infrastructure expenditure Reserve Fund (as percent of GDP) Reserve Fund Target 10 10 (7 percent of GDP) Further pension reforms 5 5 Privatization 0 0 2007 2010 2013 2016 2019

Prospects and Challenges Improvements in the policy framework … but structural slowdown, amplified by geopolitics Near-term Uncertainty—effect on (ample) buffers? Stable and credible macro frameworks as policy anchor Policy responses to avoid distortions Medium-term Structural reform agenda remains key Diversification through integration