Presentation on Russia's macroeconomic drivers and impact on the region by Torbjörn Becker (June 2017 at UI)

1. Russia’s macroeconomic drivers and
impact on the region
Torbjörn Becker
Director of SITE

2. Outline
• Russia’s macro economic driver = international oil
prices!
• Russia’s management of oil price changes
• Spillovers to CIS countries
• Concluding remarks

3. The long and short of Russia’s economy
and oil prices

4. Russia’s economy and oil—last 25 years
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
0
50
100
150
200
250
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
GDP/cap in USD
Oil price index, 2005=100

5. And no, Russia would not have been better off
without oil (from a macroeconomic point of view)
Russia without oil—some counterfactuals

6. Russia and oil—uncertain future (short-run 1)
The world’s simplest
macro model…
…makes the future
hard to predict!

7. Russia and oil—uncertain future (short-run 2)

8. Russia and oil—uncertain future (long-run)
“Putin does not see the end of the era of hydrocarbons”
“…many started saying that
the era of hydro-carbons was
coming to an end…no real
reason for such far-reaching
conclusion yet.”
”…Mankind is moving
towards green energy.”
President Putin at World
Energy Congress in
Istanbul quotes from
pravda.ru

9. Macroeconomic management of
oil price changes

10. Macro management of oil 1
—Exchange rate flexibility
20
30
40
50
60
70
80
90
100
110
120
20
30
40
50
60
70
80
90
100
110
120
2014-01-06
2014-03-06
2014-05-06
2014-07-06
2014-09-06
2014-11-06
2015-01-06
2015-03-06
2015-05-06
2015-07-06
2015-09-06
2015-11-06
2016-01-06
2016-03-06
2016-05-06
2016-07-06
2016-09-06
2016-11-06
2017-01-06
2017-03-06
2017-05-06
Ruble/USD
Oil in RUB
Oil in USD

11. Macro management of oil 2
—Fiscal space (running out)
0
50
100
150
200
250
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
USD billion
Wealth
Reserve
"Stabilization"
But now
reserve
fund
almost
gone!
Creating
Fiscal space

12. Spillovers from Russia

13. Russia and the CIS region
— a clear case of win-win (or lose-lose…)
4000
6000
8000
10000
12000
14000
16000
18000
10000
20000
30000
40000
50000
60000
70000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Russia GDP/cap in USD
CIS exports + remittances in USD mn.
Russian GDP and regional spillovers
CIS Exp+Rem Russia GDP in USD

14. Economic ties with Russia no growth boost…
0
1
2
3
4
5
6
7
8
9
10
0 5 10 15 20 25 30 35 40 45
GDP growth vs Russian Exp+Rem

15. …but associated with lower GDP voliatility(!)
0
2
4
6
8
10
12
0 5 10 15 20 25 30 35 40 45
GDP volatility vs Russian Exp+Rem

16. Inflation correlates with exports to Russia
0
5
10
15
20
25
0.0 0.5 1.0 1.5 2.0 2.5
Inflation vs exports to Russia

17. Conclusions
• Oil creates massive uncertainty both in the short and
long run for the Russian economy
• There are macro economic policies and structural
reforms to deal with oil price uncertainty (but few
reforms get implemented so far…)
• Russia’s macro economic volatility and choice of how
to manage this has important spillover effects in the
region
• From an economic perspective, Russia’s natural
modernization partner would be the EU and this
would be to the benefit of the other countries in the
region as well

18. 1
Thank you!
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