-
Looking Ahead 57
Source- Left Chart: “World Economic Outlook”, IMF, Apr.
2015Source- Right Chart: Thomson Reuters DataStream
Real GDP Growth (In % Y-o-Y Change, 2014 and 2015 )
Main Stock Market Indices In BRIC Countries over Time(In Index
Jan. 2013=100, Jan. 2013-Jun. 2015)
The BRIC economies are showing great heterogeneity. China and
India are still growing (although China has slowed down), but
Russia and Brazil are in recession, hurt by weak commodity and oil
prices. (Brazil’s recession is expected to deepen in 2015.) Stock
markets reflect the countries’ diverging fortunes, with Indian
share prices gaining sharply. Meanwhile, China’s stock-market surge
since 2014 has created concerns about a potential bubble
BRIC ECONOMIES ARE DIVERGING, with India growing strongly, China
slowing down, and Russia and Brazil struggling
DIVERGING BRIC ECONOMIES06
7.2
0.1
-3.8
-1.0
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
Russia
0.6
India
7.5
China
6.87.4
Brazil
World (2015): 2.86
20152014
190
Jan-15 Jul-15 Jul-14 Jan-14 Jul-13 Jan-13
170
100
120
0
130
110
90
150
80
140
160
180
Russia(In MICEX SharePrice Index)
India(Bombay StockExchange National100 Share PriceIndex)
China(CSI 300 Index)
Brazil(Bovespa Index)
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Looking Ahead 58
Source- Upper Chart: “World Economic Outlook”, IMF, Apr.
2015Source- Lower Chart: World Bank Development Indicators
Gross Fixed Capital Formation In Select Countries and Regions
(In % Contribution to GDP, 1980-2013)
India’s GDP at PPP and Real GDP Growth over Time(In
International $ Billion and In % Y-o-Y Growth, 1980-2020)
INDIA’S ECONOMY HAS MORE THAN DOUBLED SINCE 2005 IN TERMS OF
PURCHASING POWER PARITY, though the growth has slowed in recent
years
Effective policies to contain market volatility, ease inflation
and improve business confidence have propelled India’s economy,
boosting expected real GDP to International $8 Trillion in 2015 in
PPP terms, and growth to 7.5%. Nonetheless, economic performance
has come down from its peak in 2010, when growth exceeded 10%.
Despite optimism in India’s financial markets, investment remains
low, and significant structural reforms are still needed to improve
the efficiency of local business and attract foreign resources
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
0
2
4
6
8
10
12
+144%
202020182016201420122010200820062004200220001998199619941992199019881986198419821980
2015
2005
GDP at PPP (In International $ Billion) Real GDP Growth (In
%)
Real GDP GrowthGDP based on PPP
10
15
20
25
30
35
40
45
50
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
2006 2008 2010 2012 2014
OECD members
Lower MiddleIncome
India
China
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Looking Ahead 59
INDIA’S FISCAL DEFICIT IS HIGH IN COMPARISON TO EMERGING MARKETS
with expenditures increasingly stretched by oil, food and
fertilizer subsidies
Latest data on fiscal indicators show the Indian economy on
track towards stabilization in the short term. Large cuts in
capital spending enabled a 0.4% reduction in the central government
deficit in 2014. Nonetheless, significant policy overhaul,
including tax and subsidy reform, is needed to meet mid- to
long-term goals, including reducing the central government deficit
to 3% of GDP in 2016
Central Government Gross Fiscal Deficit(In Trillion Rupees and
In % of GDP, 2007-2020)
Breakdown of Government Spending by Type of Expenditure(In Ten
Trillion Rupees, 2007/2008-2013/2014)
Source- Upper Chart: “World Economic Outlook”, IMF, Apr.
2015Source- Lower Chart: “Indian Public Finance Statistics
2013-2014”, Indian Ministry of Finance, 2015
-7.1-7.2-7.2-7.2-7.5-8.1-8.4
-9.8
-4.4
-6.4-6.5-6.7
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
00
-12
-16
-4
-20
-8
-11.4
-12.4-13.6
-14.9
2008
-7.2-6.5
20152009
-5.6
-10.0
2014
-2.2
-6.3
2007
-8.2-7.5
2010 20162011 2012 20182013
-9.0
-16.5
2017 2019 2020
-6.9
-10.1
Estimates
In Trillion Rupees In % of GDP
Gross Fiscal Deficit Share of GDP
2.0
1.5
1.0
0.5
0.0 5%6%
6%4%
45%
13%
21%
3%5%
1.0
0.8
2013/20142011/20122009/20102007/2008
1.21.3
1.9
1.4
4%
43%
13%
22%
0.7
3%4%
5%4%
54%
11%
20%
7%5%
6%5%
4%
50%
13%
20%1%6%6%4%
48%
14%
21%0%9%5%
49%
14%
23%0%5%5%
51%
14%
25%
Defence
Interest Petroleum SubsidyFood Subsidy
Fertilizer subsidyStatutory State Grants, Loans and Advances
Other Developmental & Non-Developmental
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Looking Ahead 60
Note: (1) Year represents India’s fiscal year (April 1 - March
31)Source- Upper Left Chart: IMF DatamapperSource- Upper Right
Chart: Thompson Reuters DataStreamSources- Lower Chart: IMF
Datamapper; “India: Country Report No. 15/61”, IMF, 2015
Current Account Deficit and Gold Imports over Time(1)(In % of
GDP and In US$ Billion, 2004-2019)
India’s inflation rate dropped 4 percentage points to 6% in
2014, largely due to successful steps by the Reserve Bank of India
to tighten monetary policy and falling energy prices. While policy
changes have had a stabilizing effect on the economy and on
exchange rates, forecasted inflation rates remain above the RBI’s
inflation target for 2016. The exchange rate has stabilized since
the Rupee’s depreciation in 2013. The current account deficit has
narrowed dramatically as a result of the government’s successful
efforts to curb gold imports
INFLATION RATES ARE AT THEIR LOWEST LEVELS SINCE 2007, THE RUPEE
HAS STABILIZED AND EXTERNAL VULNERABILITIES HAVE DIMINISHED
Annual Inflation(In % Y-o-Y Change, 2005-2020)
US$ Value of 100 Indian Rupees over Time(In US$, Apr. 2005 -
Apr. 2015)
4
5
6
7
8
9
10
11
2004 2006 2008 2010 2012 2014 2016 2018 20201.4
1.6
1.8
2.0
2.2
2.4
2.6
Apr-07
Apr-14
Apr-12
Apr-05
Apr-10
Forecast
0
1
2
3
4
5
6
201620092006 2018201520102007 2013 20192008 2011 20142004
201720122005
Government of India imposes restrictionon gold imports
Government of India easesrestriction on gold imports
Gold Imports projected toremain below 2013 peak rates
Current Account Deficit(In % of GDP)
Gold Imports(In US$ Billion)
0
1
2
3
4
5
6
Gold Imports Current Account Deficit
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Looking Ahead 61
India’s Corporate Sector Financing Sources(In % of GDP, Four
Quarter Moving Average, Q1 2007 - Q3 2014)
Note: (1) 2014 data for South Africa through Q2 onlySource-
Upper Chart: “India Article IV Consultation Staff Report”, IMF,
Mar. 2015Sources- Lower Left Chart: IMF Financial Soundness
Indicators; “China Bank Bad-Load Ratio Jumps Most in At Least a
Decade”, Bloomberg, 2015Source- Lower Right Chart: “India Article
IV Consultation Staff Report”, IMF, Mar. 2015
Public banks still provide the largest share of credit to the
market (private banks have about a quarter of banking assets).
However, public banks are also highly exposed to the weakened
corporate sector, which has caused their asset quality to
deteriorate. This exposure remains a key vulnerability for public
sector banks, and the percentage of non-performing loans is up 8%
since 2013 and 63% since 2011. Going forward, capital markets could
potentially meet more of the country’s financing needs
CREDIT GROWTH HAS BEEN ANEMIC IN INDIA, with public banks having
a high incidence of non-performing loans, which has weakened their
balance sheets and restricted their ability to extend credit
Gross Non-Performing Loans (NPLs)(In % of Outstanding Loans,
2011-2014)
Comparison of Non-Performing Loan Rates Across Key Emerging
Markets(In % of Total Loans, 2011, 2012, 2013 and 2014(1))
0
2
4
6
8
10
12
14
16
18
20
22
20142013201220112010200920082007
Capital Markets Listed Equity Domestic Bank CreditExternal
Commercial Borrowing Capital Markets Borrowing
4.68
3.47
2.14
0.96
4.04
3.45
1.77
4.03
3.50
2.85
2.07
1.64
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
-25%+63%
-18%
-3%
South Africa
3.64
India
4.35
3.37
2.67
Brazil
1.69
+71%
Indonesia
1.00
2.86
0.95
China
5
4
3
2
222
2
22
3
4
3
33
2013/142012/132011/122010/11
Foreign Banks
New Private Sector Banks
Old Private Sector Banks
Public Sector Banks 2014201320122011
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Looking Ahead 62
India Reaches Current Chinese LevelsIndia - Current Levels (2015
or Most Recent)China - Current Levels (2015 or Most Recent)
45
44
16.2
23
66
75
825
3.3
36
49.5
12.7
6.2
19
11.9
207
1.7Fertility Rates(Number of Births per Woman, 2012)
Tertiary Education (In % Enrollment, 2012)
Passenger Cars(In Number Cars per 1,000 people, 2010)
GDP per Capita (In Thousands,International $ at 2011 Prices,
2013)
GDP (In International $ Trillion at 2011Prices, 2013)
Population in Cities over 1 Million (In % of Total Population,
2013)
Middle Income Population(In % of People on $2-4/day, 2010)
Life Expectancy(In Average age of Mortality, 2012)
Patent Applications(In Number of Applications per Year,
2013)
Electrical Power per Capita(In kWh per Capita, 2011)
Median Age(In Year, 2015)
Urbanization (In % Population livingin Urban Areas, 2015)
Mortality Under 5 Years(In Number of Deaths per 1,000 Births,
2013)
Patents Granted(In Number of Patents, 2013)
CO2 Emissions per Capita(In Metric Tons per Capita, 2010)
Internet Penetration (In % Population, 2013)
30 25 20 15 10 5 0 +5 +10 +15 +20 +25 +30
27
Years Since China was at Indian Levels Additional Years Required
for India to Reach CurrentChinese Levels
25
15
12
14
11.9
5.4
31
66
43
0.7
27
32.3
52.7
3
2.5
1.6
Poverty (In % of People Living onless than $2/day, 2012)
59
Sources: “World Economic Outlook”, IMF, Apr. 2015; World Bank
Development Indicators; UN Data; World Population Prospects 2012
Revision; World Bank PovCal; WIPO Statistics Database; “The World
in 2050”, PWC, 2015
Socioeconomic Development Metrics: China vs. India on Various
Indicators
India remains years, and in some cases decades, behind China in
terms of key social and economic development indicators. Analysis
of past and projected future growth rates suggests that India will
take longer than China did to reach China’s state of development in
many of these areas. In the case of GDP per capita, poverty rates
and passenger car penetration, India is likely to advance at less
than half China’s pace
DESPITE TREMENDOUS SOCIOECONOMIC GAINS, INDIA REMAINS FAR BEHIND
CHINA ON MANY METRICS, and is unlikely to catch up any time
soon
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Looking Ahead 63
India AheadPrior to 1980
X China’s value in 2030 (according to indicatormetric); Remains
ahead of India post-2030 India value in 1980 (according to
indicator metric);Ahead of China prior to 1980 and remains
ahead
China AheadPost-2030
25
24
16
39
35
X India value at time of surpassing China(according to indicator
metric)
2020 1990 1980 2030
68
1.5
48
GDP per Capita(In 2014 International $
Thousand)
Elderly Dependency Ratio(In % Ratio of Total
Population over 65 Years to Working Age Population)
Elderly Population(In % of Total
Population over 65 Years)
Working Age Population(In % of Total Population
15-64 Years)
Total Population(In Billions of People)
Gender Gap(In % Females out of
Total Population)
Youth Dependency Ratio(In % Ratio of Total
Population over 65 Years to Working Age Population)
Youth Population(In % of Total Population
0-14 Years)
Sources: “The World in 2050”, PWC, 2015; World Bank Development
Indicators; UN Data; “Society at a Glace: Asia/Pacific 2014”, OECD,
2014
India Surpasses China on Various Indicators - Past and
Projected
In the coming decades, India is expected to have a bigger total
population than China and a bigger working age population, less
gender imbalance and a lower old age dependency ratio. All of these
things could become sources of competitive advantage for India.
However, China will continue to be the top performer in terms of
gross economic output for the foreseeable future, with a GDP nearly
50% higher than India’s in 2030
HOWEVER, INDIA HAS OVERTAKEN AND WILL OVERTAKE CHINA ON KEY
DEMOGRAPHIC INDICATORS, giving it some economic advantages
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Looking Ahead 64
2
4
6
8
10
12
14
16
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2018 2019 2020
India
China
Indian growth surpassesChinese growth
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070
2080 2090 2100
75
70
65
60
0
India
China
9,826
17,180
XX GDP per Capita at Peak of Ratio of Working Age Population to
Total Population(In Constant 2014 International $)
Note: (1) The turning point refers to the time when the working
age population starts decreasingSource- Upper Chart: “World
Economic Outlook”, IMF, Apr. 2015Sources- Lower Chart: UN Data;
World Bank Development Indicators; “The World in 2050”, PWC,
2015
Working Age Population as a Share of Total Population(In % of
People Aged 15-64 out of Total Population, 1950-2100)
Indian and Chinese Growth in Real GDP(In % Y-o-Y Growth of Real
GDP, 2005-2020)
The coming decades will see increasing economic competition
between India and China as China’s maturing economy continues to
slow relative to growth rates witnessed in the 1990s and in the
first decade of the 21st century. Driven by a youthful population
and an emerging educated middle class, India is expected to exceed
Chinese growth starting in 2015, although the difference in the two
countries’ growth rates will remain within 1.5 percentage points
through the end of the decade. India’s working age population as a
share of the total is projected to peak at nearly double the GDP
per capita witnessed in China, potentially boosting the country
into a higher income class over the long term
INDIA IS FORECAST TO GROW FASTER THAN CHINA STARTING IN 2015 and
is likely to reach its labor market turning point(1) at a much
higher GDP per capita than China
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Looking Ahead 65
2,030
2,3532,3912,412
2,613
1,396
559560
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
-2
-1
0
1
2
3
4
5
6
7
8
20112010
2,209
2009
1,667
200820072006 20142005
892
200420032002
511
20012000
657
2016
1,928
2015
1,904
20132012
1,108
20202019
2,241
20182017
Forecast
Real GDP Growth Nominal GDP
670
1,695
2,132
2,354
Nominal GDP Real GDP Growth
Forecast
0.00
0.28
0.30
0.32
0.34
0.26
0.38
0.40
Ratio of Brazil to US GDP per CapitaBrazil's GDP per Capita at
PPP
0.36
1980 1985 1990 1995 2000 2005 2010 2015 2020
0
5,000
10,000
15,000
20,000
Brazil's GDP per Capita at PPP Gap with US GDP per Capita
Source- Upper and Lower Charts: “World Economic Outlook”, IMF,
Apr. 2015
Total Nominal GDP and Real GDP Growth over Time(In Current US$
Billion and In % Y-o-Y Growth, 2000-2020)
Brazil’s GDP per capita at PPP and Standards of Living Relative
to the US over Time(In International $ and In Ratio of Brazilian
GDP per capita to US GDP per capita, 1980-2020)
Brazil’s GDP grew by more than 9% a year from 2000 to 2014,
earning Brazil a place among the world’s largest economies.
However, in recent years this growth has slowed down because of
supply constraints, lack of productivity growth, corruption
scandals and low investment. Moreover, the drop in commodity prices
has negatively affected Brazil’s growth prospects. While Brazil’s
GDP per capita measured in international dollars has risen, the gap
with US GDP per capita has widened, indicating a drop in relative
standards of living (especially when compared to 1980)
BRAZIL’S PACE OF ECONOMIC GROWTH HAS SLOWED IN RECENT YEARS
although it is expected to pick up slightly by 2020. Meanwhile, the
discrepancy with US income standards is likely to expand
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Looking Ahead 66
2014
132.2
9%
2013
114.3
2012
96.08%
2011
82.8
12%
2014
298.7
2013
321.4
2012
331.6
2011
319.9
4%7%
21%
3% 5%
Other
International
US$ 2.1Billion
Non - Current DebtCurrent Debt
91%
88%92%
93%
7%
3%
Gas and Power
Refining, Transportationand Marketing
Exploration and Production
-7%
-23%
48.1
37.0
65%
30%
2013 2014
6%
US$ 17Billion
57%
Source- Upper Left Chart: “World Economic Outlook”, IMF, Apr.
2015Source- Upper Right Chart: “Brazil Article IV Consultation
Staff Report”, IMF, 2013Sources- Lower Chart: “Doing Business”,
World Bank, 2015; “Global Competitiveness Report”, WEF, 2014
Rankings in Business Friendliness and Infrastructure Quality(In
Rank, 2015, and 2014-2015)
Brazil’s fiscal balances have been suffering from a high
deficit, but fiscal consolidation is forecasted in the coming
years. However, with most expenditures being directed to social
benefits, the level of capital investment will still fall short of
what’s needed. This will perpetuate the problem of low
infrastructure quality in Brazil. Brazil’s lack of competitiveness
also stems from its bureaucracy, red tape, and unfriendly business
environment as measured by the World Bank’s Doing Business
index
HIGH DEFICIT, UNDERINVESTMENT AND SUPPLY CONSTRAINTS HAVE
CONTRIBUTED TO SLOW GROWTH, as have low levels of
competitiveness
Government Budget Balance over Time(In % of GDP, 2006-2020)
Government Expenditure Breakdown by Type(In Brazilian Real
Billion, 2009-2018)
Forecast Forecast
3
5
55 6 5 5 5 5 5 5
7
77
7 7 77 7 7 7
4
44
4 4 44 4 4 4
5
44
4 4 44 4 4 4
1111111
2018
21
2017
21
2016
21
1
2015
21
1
2009
21
2014
22
2013
22
2012
23
2011
22
2010
23
3.03.5
4.2
5.3
6.2
3.1
2.5
3.22.7
3.6
2020
2.6
20182016
4.7
2014
2.7
2008
1.5
2012
2.6
2010
Other
Personnel
Transfers
Pension Benefits
Capital Expenditures
0
-1
-2
-3
-4
-5
-6
-7
2006
Switzerland Hong Kong
Singapore Singapore
US UAE
Russia Cyprus Brazil
China
South Africa
Brazil Sri Lanka
Brazil
Brazil Hungary
Vietnam
India
Morocco India
WEFCompetitiveness
InfrastructureQuality
WEF Competitiveness
BusinessConfidence
WEFCompetitiveness
World Bank’sDoing Business
Singapore
New Zealand
Hong Kong
China
Egypt
Nicaragua
Pakistan
Iran
1
2
3
90
112
119
120
72
71
60
128
130
57
1
2
3
56
54
87
81
76
47
75
1
2
3
45
46
92
91
63
51
50
3
2
1
Turkey
Portugal
Poland
Kazakhstan
Hungary
Germany
Switzerland
Japan
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-
2014
132.2
9%
2013
114.3
2012
96.08%
2011
82.8
12%
2014
298.7
2013
321.4
2012
331.6
2011
319.9
4%7%
21%
3% 5%
Other
International
US$ 2.1Billion
Non - Current DebtCurrent Debt
91%
88%92%
93%
7%
3%
Gas and Power
Refining, Transportationand Marketing
Exploration and Production
-7%
-23%
48.1
37.0
65%
30%
2013 2014
6%
US$ 17Billion
57%
Source- Upper Chart: Transparency InternationalSources- Lower
Charts: Petrobras Financial Statements; “Corruption Scandal Will
Cost Petrobras at Least US$ 2.1 Billion”, Nasdaq, Apr. 2015;
“Petrobras Write-down May
Give New Ammunition to Class-Action Suit”, Reuters, Apr.
2015
Corruption in Brazil and Comparative Countries(In Corruption
Perception Index Rank, 2014)
In 2015, it was revealed that Brazil, which already ranks low on
the corruption index, had suffered a corruption scandal costing the
government 5.7 Billion Real over the last 10 years. The Petrobras
scandal has had major implications on the company’s operations
forcing major asset writedowns and a decrease in its investments.
The scandal also had implications on other sectors that are highly
tied to it costing the Brazilian economy an estimated US$ 27.1
Billion. Even before the drop in oil prices and the revelation of
extensive graft, Petrobras was the world’s most indebted oil
company
CORRUPTION HAS DETRACTED FROM GROWTH, with the Petrobras
scandal, the biggest in Brazil’s history, costing the country an
estimated 1% of GDP
7170696866
4443
321
GreeceBulgariaBrazilSouth AfricaTurkeyLatviaSouth
KoreaFinlandNew ZealandDenmark
PETROBRAS AFFECTED METRICS: High Debt, Write-down of Assets, and
Drop in Investment
Petrobras Consolidated Debt(In US$ Billion, 2011-2014)
Petrobras Total Assets(In US$ Billion, 2011-2014)
Petrobras Total CAPEX and Investments(In US$ Billion, 2013 and
2014)
Petrobras Loss Due to Corruption
Assets Write-Downs
Looking Ahead 67
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Looking Ahead 68
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
13.0
12.5
12.0
11.5
11.0
10.5
10.0
9.5
9.0
8.5
8.0
7.5
0.0
Jan 15Jan 14Jan 13Jan 12
2.8
3.0
3.2
2.2
0.0
2.4
1.8
2.6
2.0
Jul 14 Jan 15
3.13
Jul12 Jan 13 Jul 13 Jan 14Jan 12
Source- Upper Chart: “World Economic Outlook”, IMF, Apr.
2015Sources- Lower Charts: Thompson Reuters DataStream;
“International Financial Statistics Yearbook”, IMF, 2014
Inflation Rate(In %, 2005-2015)
Inflation in Brazil rose to 7.7% recently--the highest level in
a decade. In response—and to cool the economy--policymakers raised
the interest rate to 12.75%. However, the tight monetary policy
dampens growth and runs the risk of pushing Brazil deeper into
stagflation. Meantime, US monetary policy and potential rising
rates have led to major capital outflows and to a depreciation of
the Brazilian real. While depreciation should boost Brazil’s
exports and thus its competitiveness in the long term, the speed of
recent currency declines could also have negative effects
BRAZIL’S ECONOMY IS GOING INTO “STAGFLATION” WITH HIGH INFLATION
COINCIDING WITH LOW GROWTH and capital outflows and depreciating
currency adding to the economic woes
Exchange Rate Against US Dollar(In BRL/US$, Jan. 2012 - Jan.
2015)
Interest Rates(In %, Jan. 2012 - Jan. 2015)
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Looking Ahead 69
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
4
6
8
10
-8
-6
-4
-2
0
2
100
110
90
80
70
60
50
40
30
0
10
20
20202010200920082007 20152014201320122011 2017 2018 20192016
Nominal GDP
Nominal GDP (In Ruble Trillion)
Real GDP Growth Rate
(In % Y-o-Y Change)
Real GDP Growth Rate
Estimates
105
100
95
85
80
75
90
60
110
115
May05
May06
May07
May08
May09
May10
May11
May12
May13
May14
Feb15
-140
-120
-100
-80
-60
-40
-20
0
20
40
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2008 2009 2010 2011 2012 2013 2014 2015
Source- Upper Chart: “World Economic Outlook”, IMF, Apr.
2015Source- Lower Left Chart: Central Bank of RussiaSources- Lower
Right Chart: Thomson Reuters Datastream; Business Insider
Russian Nominal GDP and GDP Growth over Time(In Ruble Trillion
and In Y-o-Y % Change, 2007-2020)
Falling oil prices and the crisis in Ukraine have had a damaging
effect on Russia’s economy, lowering growth rates that had already
been slowing since peaking at 10% in 2000. Real GDP growth is
estimated to dip as low as ~3.8% in 2015 before returning to
positive territory in 2017. Capital flight more than doubled in
2014 to US$ 151.5 Billion, with more than US$ 79 Billion lost in
the fourth quarter alone, more than quadruple the value lost during
the same quarter in 2013. Although the Russian ruble showed some
signs of rebounding in early 2015, the ruble’s real effective
exchange rate was at only 70% of its average rate in 2014
RUSSIA’S ECONOMY IS PROJECTED TO CONTINUE TO CONTRACT, being
highly affected by outflow of capital and a depreciating
currency
Capital Outflows(In US$ Billion, Q1 2008 - Q2 2015)
Real Effective Exchange Rate of Russian Ruble over Time(In REER
Index 2010=100, May. 2005 - Feb. 2015)
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Looking Ahead 70
26242220181614121086420
12
56
54
52
50
48
46
44
14
10
8
6
4
2
07674727034323028
Latvia
Spain
Czech Republic
Kazakhstan
Ukraine
US
Japan
Turkey
Italy
Belarus
Poland
South Korea
Netherlands
Germany
China
UK
Finland
France
Belgium
Switzerland
Latvia
Imports From Russia
Sanctions
No Sanctions
No Sanctions - Negative Growth
Size Represents Real GDP Growth(In % Change Y-o-Y, 2015)
World3.5%
Exp
orts
to R
ussi
a
Sources: UNCTAD; IMF Datamapper
Top Russian Trading Partners(In US$ Billion of Aggregate
Absolute Values of Imports and Exports, 2014)
Russia is burdened by sanctions and slow growth in top export
markets, contributing further to the negative outlook for the
country’s economy. Of the country’s top 15 trade partners, only
China will see growth above the projected 2015 global average of
3.5%. Ten of these trading partners have imposed sanctions, cutting
off important import and export markets for Russia. Sanctions are
estimated to have cost Russia US$ 26.7 Billion in 2014 and the
impact in 2015 may be two or three times that amount, according to
economists’ forecasts
RUSSIA’S ECONOMIC DOWNTURN HAS BEEN DEEPENED BY SANCTIONS AND BY
A SLOWDOWN IN THE GROWTH OF ITS MAJOR TRADE PARTNERS
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Looking Ahead 71
17%
Germany
18%
82%
ChinaBelarus
92%
Italy
26%
74%
Netherlands
29%
71%
Russia
Other
Latvia
28%
72%
99%
1%
Finland
68%
32%
UK
8%
92%
South Korea
8% 4%
96%
Japan
7%
93%
Poland
83%
Origin ofCountryPetroleumand NaturalGas Imports
RussianDependency
ImporterDependency
Top Destinations = 66% of Russian Petroleum and Natural Gas
Exports
Note: (1) Values represent aggregate of five UNCTAD product
groups: 333, 334, 335, 343 and 344 Source- Upper Chart:
UNCTADSources- Lower Left Chart: Wall Street Journal; “Russia’s
Restrictions on Imports”, FAO, 2014Source- Lower Right Chart:
Federal State Statistics Service, Russia
To date, sanctions have stopped short of bans on natural gas and
petroleum exports. With nearly one-third of EU oil and gas imports
coming from Russia, any steps to significantly cut trade flows
would hurt economies on both sides. Russia has made efforts to
leverage economic influence by imposing retaliatory sanctions on
agricultural imports. While these sanctions have caused some strain
in European and American markets, they have also hurt Russia’s
domestic economy, contributing to food price increases of 15% in
2014 and more in 2015
RETALIATORY RUSSIAN SANCTIONS ARE HAVING AN IMPACT ON SOME
EUROPEAN ECONOMIES, but are also causing domestic inflation
Dependency of Top Export Destinations for Russian Petroleum and
Natural Gas Exports(1)(Width=In % of Russian Petroleum Exports,
2013 and Height=In % of Russian Imports as a Share of Total Country
Imports, 2013)
Exporting Countries Affected by Russian Agricultural Sanctions
over US$ 100 Million(In US$ Million, 2013)
Russia’s Food Inflation(In % Y-o-Y, May 2014 - Apr. 2015)
0 200 400 600 800 1,000 1,200
France
Lithuania
Denmark
US
Spain
Finland
Canada
Germany
Netherlands
Poland
Norway
Poultry
Vegetables
Fruits
Milk and Milk Products
Pork
Fish and Seafood
0
5
10
15
20
25
30
Apr-15
Mar-15
Feb-15
Jan-15
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
May14
Jun-14
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