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 October 15, 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 0.2 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 2 Statistical discrepancy 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 2010 2011 2012 2013 2014

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

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 42 90 Exchange Rate and Oil Price 40 38 100 36 34 110 32 30 Ruble per U.S. dollar Brent price, rhs 28 120 Dec-13 Feb-14 May-14 Jul-14 Oct-14

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

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

Monetary policy considerations Monetary policy stance Role of flexible exchange rates Road to a credible inflation targeting framework Liquidity measures? Emphasis on financial stability

Financial sector developments Containing risks. Encouraging intermediation 60 Consumer 50 50 loans Credit growth, y/y Auto loans Drivers of retail credit growth, y/y households Mortgage loans 50 Housing loans 40 40 Retail credit growth 40 30 30 total 30 20 20 18 20 corporates 13 10 10 11 10 0 0 0 Jul-11 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Apr-11 Oct-11 Apr-12 Apr-13 Apr-14 Oct-12 Oct-13

Developments in deposits 35 35 Deposit growth, y/y 30 30 as of 01/01/2014 as of 08/01/2014 Rub. bn. % of total % of GDP Rub. bn. % of total % of GDP 25 25 Total deposits 32,795 49 34,380 49 Rub and FX Rub 22,932 70 34 23,834 69 34 FX deposits 9,863 30 15 10,546 31 15 Households 16,958 25 16,883 24 20 20 Rub 14,001 83 21 13,699 81 20 FX 2,957 17 4 3,184 19 5 Non-financial enterprises 10,838 16 11,976 17 Rub 6,372 59 10 6,944 58 10 15 15 FX 4,467 41 7 5,031 42 7 Credit institutions 4,806 7 5,339 8 Rub 2,370 49 4 3,013 56 4 10 FX 10 10 2,437 51 4 2,326 44 3 Individual entrepreneurs 193 0 182 0 Rub 190 99 0 178 98 0 Rub deposits 7 FX 3 1 0 4 2 0 5 5 0 0 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

Banking sector 12 8 Interest rates, percent Overdue loans, percent of total loans 11 7 credit to corporates up to 1 year 10 7 Retail 9 6 8 Total 5.7 interbank overnight rate 6 7 5 6 4.7 Corporate 5 5 household deposits up 4.3 to 1 year 4 4 3 4 2 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 3 Jan-11 Jan-12 Jan-13 Jan-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 Uncertainty — effect on (ample) buffers? Near-term Stable and credible macro frameworks as policy anchor Policy responses to avoid distortions Medium-term Structural reform agenda remains key Diversification through integration