A stark warning was issued this week by the World Bank as they predicted the Russian economy would contract by 4.5% this year, leading to an additional 2.75m people falling into poverty.
“There is a risk of further deterioration in the world economy and in Russia. The real economy has deteriorated more than I expected, I’d call it a silent tsunami”. The words of the World Bank’s Zeljko Bogetic, addressing Moscow at the reports launch. The average wage has dropped $144US since the end of last year and unemployment is likely to rise by 2.7m, with manufacturing and retail among the hardest hit. Approximately 8% of the manufacturing work force will lose their positions in 2009; output in the sector has fallen 24.1% in January alone.
Russia relies heavily on its oil and other energy exports, leaving it susceptible to the more extreme pains of the global downturn. The Bank predicts that the average price of oil will be just under $48US per barrel, in comparison to last year’s figure of almost $97.
According to Bloomberg, the World Bank has not been the only one revising its sums. The Russian cabinet have altered their cloth according to the times; with new budget estimates calculated using an average oil price of $41. The government themselves believe the downturn will be less pronounced than that proclaimed by the bank, predicting a 2.2% contraction. Igor Shuvalov, the Russian Deputy Prime Minister said the forecasts were “too pessimistic for Russia”.
He may have a point, the world banks revised figures are based on oil maintaining a price around the mid $40’s; Russian estimates are based on oil selling for $41. This is wise considering Merrill Lynch’s Francisco Blanch warning to the Telegraph that prices could drop to $25 a barrel in 2009.
The World Bank has praised Russia’s moves to stave off the worst of the recession but has warned that more needs to be done. The report says: “Russia’s early fiscal policy response has so far focused on supporting the financial sector and enterprises, with rather limited support to households”. The bank has called for an improved targeting of the vulnerable, something that has traditionally hindered Russia’s attempts to tackle the impoverished. Over the course of the previous ten years, Russia had begun to make inroads into the poverty stricken but were hampered by the lack of governmental infrastructure within. The bank warns: “past experience in Russia and elsewhere suggests that any regional response to a sudden increase in poverty will be suboptimal in the absence of a strong federal intervention.”
While 625bn Rubles have been set aside for financial sector aid by the cabinet, only 111.5bn has been earmarked to ‘protect the vulnerable’. 300bn had already been set aside for packages such as indexing pensions and increasing the minimum wage. In January this year, unemployment benefit increased by 1686 Roubles to 4900, but in a country where under a third of all unemployed are officially registered, it is likely that this measure will not make a substantial difference.
BBC news reported on March 30 that social unrest was a concern in the more rural areas of Russia while Ban Ki Moon, UN Secretary General, speaking to Moscow on March 27 said: “if life grows much harder, especially in the poorest nations, social unrest will surely increase”.
It is unknown how well founded these fears will turn out to be -just as it is equally unknown how accurate any projections can be when based on the economically unreliable resource that is oil- but one thing is for sure; the poor of Russia face an almighty battle against the tide.