were more competitive and the West lifted economic sanctions. Nonetheless, Kremlin macroeconomic policymakers have done a credible job, given Putin’s flawed Muscovite economic mechanism.
Welfare
Russian per capita income in 2017 was 46.7% of that of America.7 The society is inegalitarian, but less so than the United States. Russia’s Gini coefficient is high at 41.2 and that of America’s is at 45.8 Russia’s poverty rate is 13.2%, a figure the Kremlin predicts will halve over the next 6 years driven by rebounding real income growth.9 America’s poverty rate by comparison was 12.3% in 2017 (Fontenot et al., 2018). This is better than that of Russia’s for the moment, but is unlikely to remain so if poverty in the Federation plummets as forecasted by authorities. The World Bank estimates that the average annual growth of 1.5% would bring down the poverty rate from 13.2% to only 10.7% by 2024. A 4.4% rate of growth would be necessary to achieve the state’s goal of 6.6%, unless the government increases social assistance and transfers. If growth remains sluggish in the 1.5% range, halving the poverty would require transferring 0.27% of the GDP to the poor annually over the next 6 years.
The Kremlin’s poverty reduction programme although broadly welcome has a downside. A portion of the income gain will come from shortened retirements. Russia’s new Pension Law 489161-7 enacted on October 3, 2018 increased the retirement age from 55 to 60 years for women and from 60 to 65 years for men. Although life expectancy at birth is now 72.5 years (77.1 for females; 66.5 for males), the figure is lower for those currently approaching retirement age, causing considerable political consternation. The World Bank supports the Putin administration on the issue from the perspectives of both fiscal prudence and inter-generational justice; nonetheless, the new law is unpopular.
Performance, Potential and Prospects
Russia’s economic future viewed through the prism of World Bank global statistics is satisfactory in the short term, better during the remainder of Putin’s presidential tenure and superior for decades thereafter under a more liberal regime. Its data show that Russia’s economic performance in the recent years has lagged that of the EMDEs (Emerging Markets and Developing Economies; that is, low-tiered advanced nations including Brazil, India, China and South Africa) but paced the West despite a severe petroleum price shock and strong economic sanctions imposed by America and the European Union, behaviour that accords with the World Bank’s priors. Russia as a low-tier advanced nation (not an EMDE as the BRICS classification suggests) should have grown less rapidly than emerging nations and should only have slightly outperformed higher tier advanced nations due to the “catch up” effect. Figure 1 confirms that this more or less is how Russia’s economy behaved.
The World Bank moreover expects better results in the years immediately ahead because of improving trends in Russia’s competitiveness (especially with respect to small and medium-sized enterprises),10 government administrative efficiency,11 education12 and social welfare. Tomorrow, it predicts, should be better than today, and in the fullness of time, the World Bank expects Russia to converge to the global high-economic performance frontier as the Kremlin transitions to democratic free enterprise, contemporary animosities between Washington and Moscow notwithstanding.
Figure 1:Global growth is broadly stable (in %).
Source: World Bank.
Sources of Growth and Macroeconomic Stability
The World Bank’s optimism stems from its faith in the power of globalisation, buttressed by the recent statistical trends. Unemployment is declining, wages are recovering and poverty is declining. The employment and labour force participation rates remain at high levels while unemployment is close to minimum (Figure 2).
The labour force participation rate is unchanged at 63.2%. High employment rates, in conjunction with the continued decline in the working-age population, should reduce the unemployment rate further. It decreased to 4.6% in the third quarter of 2018, compared to 5.2% a year earlier (Figure 3).
Figure 2:Labour force and employment (million people).
Source: Rosstat and Haver Analytics.
Figure 3:Unemployment rate (in %).
Source: Rosstat and Haver Analytics.
The employment structure is also steady. The gap between male and female employment remains stable — unemployment for women is usually around 0.3% points lower than that for men. Most of the unemployment is still long term: 30% of the unemployed had been looking for a job for over a year. Regional unemployment is unequal, but echoes the declining national trend.
Real disposable income dynamics remains volatile. Income started to grow at the beginning of 2018. Its average growth rate in real terms in the first 10 months of 2018 was 1.6% (Figure 4).
Labour pensions rose by 3.7% in January 2018 and social pensions by 2.9% in April 2018 — slightly above the current rates of inflation. As a result, the real growth of pensions in the first 9 months of 2018 in Russia was only 1.2%.
The official poverty rate continued to decrease slowly in the first half of 2018. Driven by a rebound in real disposable income, the poverty rates in Russia decreased in the first and second quarters of 2018 (Table 1). The World Bank expects the trend to continue (Table 2).
The share of those who are economically secure in the population was unchanged in 2017, after decreasing by 5% points from 79% in 2014 to 74% in 2015 and further to 72% in 2017. This contraction was driven by a large fall of disposable incomes and wages in 2015 and a continued decline in incomes in 2016–2017.
Figure 4:Real income dynamics (in %, year-on-year).
Note: Pension and disposable income dynamics adjusted for one-time payment in January 2017.
Source: Rosstat and World Bank staff estimates.
Table 1:Poverty (cumulative).
Source: Rosstat.
Table 2:The moderate poverty rate is expected to continue to decline in 2018 and throughout 2020.
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