Russia s Economic Success: Pros and Cons. Petr Aven Alfa Bank President

Transcription

1 s 2-27 Economic Success: Pros and Cons Petr Aven Alfa Bank President

2 Economic trends remain favorable 12 Real GDP growth Inflation 5 5 CBR reserves, $ bln Current account, $ bln * * Economic growth (lhs) Inflation (rhs) CBR reserves (lhs) Current account (rhs) Source: Rosstat Source: CBR 1

3 11% 9% 7% 5% 3% 1% 2-27: A Success Story? Average GDP growth, %, '-7 99 Higher rating positively affected growth Ukraine Brazil India Hungary 7 GDP growth index 2-27, % Norway CCC- BB- BB+ BBB- BBB+ A- A AAA S&P rating Private wealth in increased faster than in peers * Retail lending growth, $ bln, '-'7 Brazil India -2% % 2% 4% 6% 8% 1% 12% 14% 16% 18% Accumulated real disposable income growth, %, '-' Accumulated GDP growth, 2= Ukraine India In the previous seven years became an investment-grade country, access to foreign capital helped accelerate the growth rate Disposable income up 14% in 2-27, ns have access to $115 bln in retail loans Though strong, 2-27 accumulated growth was below that of some peers India Ukraine Sources: World Bank, S&P, CBR *Note: Size of bubble reflects GDP per capita 27 2

4 2: Weak economy, poor macro story GDP growth, % 12% 1% 8% 6% 4% 2% % -2% -4% -6% -8% 2% 16% 12% 8% 4% GDP growth correlation with oil prices was high Public sector employment is high at 17% of population Employment by public sector, % population 8% GDP growth 9% 9% 11% Urals price 12% Urals, $/bbl 17% s GDP growth trend was highly correlated with oil prices Public sector employed 17% of population in 2 In 95- had one of the world s highest fiscal deficits, a debt burden equal to 4% of GDP and low import coverage by reserves In 95- had a high fiscal deficit, high debt burden, low reserves * Fiscal balance, % GDP Malaysia Brazil Argentina State Debt, % GDP Chile % -8% -7% -6% -5% -4% -3% -2% -1% % 1% 2% 3% 6% 5% 4% 3% 2% 1% % Hungary Canada UK Czech Republic Finland Argentina Brazil Chile Malaysia *Note: Size of bubble reflects ratio of Central Bank reserves to imports Sources: Rosstat, Bloomberg, World Bank, Alfa Bank Research 3

5 2: Capital flight, low FDI 3 $ bln Capital flight was offset by state borrowing $ bln 16 Capital flight of $1-2 bln a year in was offset by state foreign borrowing failed to attract FDI despite low average monthly salary of $ Banking assets penetration was as low as 34% of GDP Banking penetration remained low -2 2 Banking assets/gdp -3 35% Annual capital flight, $ bln State foreign debt, $ bln 3% failed to attract FDI 25% Germany FDI per capita in 2, $ Brazil India Average monthly salary, $ 2% 15% 1% 5% Norway Ukraine Uzbekistan Ukraine Uzbekistan Germany Norway Note: Size of bubble reflects private consumption per capita in 2 prices (figures for Norway and Germany are scaled down by a factor of three) Gini 95- Note: Size of bubble reflects enlarged budget spending, % GDP Sources: Rosstat, CBR, World Bank, Alfa Bank Research 4

6 Poor population, rising inequality In 1999 living standards in were very low Income inequality worsened dramatically 5 45 sq.m per capita % of population 6% 48% Income of richest 2%, % of total income 4 5% 35 4% 42% % 36% % 1 1% 3% Ukraine Estonia UK Hungary Sweden % High inflation ruined savings, boosted dollarization Housing stock per capita (lhs) Population in poverty, % of total (rhs) In 5% of the population was living below $4 PPP/day in 1999, housing stock per capita was modest at 2 sq m Income inequality widened after 199, with 47% of wealth in the hands of the richest 2% of the population in 2 Persistently high inflation destroyed savings, fuelled dollarization and lowered the deposits-to-gdp ratio to 1% Foreign Currency deposits, % of total Note: * Maximum annual inflation level during Size of bubble reflects retail deposits, % GDP Ukraine Argentina Turkey 1 Nigeria Annual inflation* Sources: World Bank, UNECE, Rosstat, IMF, Alfa Bank Research 5

7 List of reforms 2: Restructuring the economy Financial infrastructure Fiscal reform Creation of stabilization fund Total budget expenditures to be cut from 35% of GDP Tax reform Cutting profit tax, personal income tax, payrolls Pension reform Introduction of defined contribution system Defined contributions invested in financial markets Banking reform Introduction of deposit insurance Foreign access to banking sector to be liberalized Privatization of state banks on the agenda Industrial development Liberalization SMEs in accounted for only ~1% of GDP vs. 5% in Europe SMEs employed only 15% of the labor force in vs. 49% in the UK and 54% in the US Reform of natural monopolies Cross-subsidization by UES, Gazprom as high as 5% of GDP Number of accidents in communal housing sector had increased by five times since 199 Administrative reform Reducing and streamlining responsibilities of state authorities 3% 25% 2% 15% 1% 5% India Japan Germany France Sweden Finland Norway Canada Ukraine Fixed Investments, % of GDP, % Energy efficiency had to be improved Energy consumption, mln toe/gdp PPP, $ Sources: Institute of Energy Policy, Rosstat, Alfa Bank Research 6

8 2-27: Macro stability achieved 2 27 Federal budget surplus, % GDP 1.5% 5.5% CBR reserves, $ bln $28 bln $476 bln Months of imports % total foreign debt 18% 13% Net capital flows -$24.8 bln $81.2 bln Foreign currency retail deposits, % total 32.5% 13.% State foreign debt, $ bln % of GDP 51.2% 3.6% S&P rating CCC- BBB+ Sources: CBR, Minfin, S&P, Alfa Bank Research 7

9 25% 15% 5% -5% 27: Very strong macro picture Investment growth exceeded 2% in 27 Investment growth, % Capacity utilization, % of total Macro stability helped to accelerate consumption growth, private consumption rose to 6% of GDP Investment growth accelerated to 21% y-o-y in 27, the highest since 1992, capacity utilization rate went up to 8% In 27 had one of the world s lowest state debts (3.6% of GDP), one of highest fiscal surplus and held the world s third-largest reserves -15% -25% 4 3 Countries by budget deficit, reserves and debt in 27 State Debt, % GDP 25% -35% Investment growth, % Capacity utilization (rhs) Lower unemployment supports consumption 2 2% Argentina 65% 6% 55% Private consumption, % GDP in fixed prices Unemployment, % 14% 12% 1% 8% Malaysia 15% 1% 5% Brazil Chile 5% 6% Fiscal balance, % GDP 45% 4% 2% -6% -4% -2% 2% 4% 6% 8% 1% 4% % Argentina Brazil -5% Chile Malaysia Private consumption (lhs) Unemployment (rhs) Sources: Rosstat, CBR, World Bank, Alfa Bank Research * Size of bubble reflects Central Bank reserves to import ratio 8

10 : Stabilization fund at $158 bln $ bln Since 25 has seen a strong capital inflow After receiving investment-grade rating in 23, benefited from capital inflows ($81.2 bln in 27) and increase in FDI ($27.8 bln in 27) Unlike the other largest reserves holders, is running both a capital and current account surplus has used high commodity prices to resolve its debt problem benefited from current and capital account surplus in $ bln FDI inflows, $ bln Capital flows, $ bln Japan Taiwan India s stabilization fund and state foreign debt, $ bln State foreign debt Stabilization fund Current Account Capital account Sources: Rosstat, CBR, Bloomberg, Alfa Bank Research 9

11 Emerging markets have become more stable Current account, % GDP Fiscal position, % GDP Turkey Indonesia Indonesia Malaysia Malaysia Venezuela Venezuela Chile Chile Brazil Argentina -5.%.% 5.% 1.% 15.% 2.% Emerging market countries now have a current account surplus of $1,445 bin versus a $17 bln deficit in All emerging market countries have managed to reduce state foreign debt since 1995 has one of the world s largest fiscal surpluses, at 5.5% of GDP, and one of lowest state foreign debt levels, at 3.6% of GDP Brazil Argentina -1.% -5.%.% 5.% 1.% State Debt, % GDP Malaysia Indonesia Venezuela Chile Brazil Argentina % 1% 2% 3% 4% 5% 6% 7% Sources: IMF, WB, Alfa Bank Research 1

12 Social issues: Living standards improved 4 35 Number of cars per capita Students per 1, population Ukraine Uzbekistan Ukraine Uzbekistan Czech Republic Middle class is gradually emerging Number of cars per capita tripled from 1991 Over 1 mln ns travel abroad annually Number of students has more than doubled over the past 1 years Birth rate has increased compared to 1995, infant mortality dropped from 15 to 11 per thousand Births per 1, population Ukraine Uzbekistan Czech Republic Czech Republic Infant mortality (per 1, births, 27) Ukraine Uzbekistan Sources: Rosstat, CIA World Factbook 27, World Resources Institute 11

13 11 Quality of life up, but should be better Real disposable income trend Real disposable income index, 1991=1 +1% 7 6 Poor health care responsible for high avoidable mortality rate Avoidable mortality per 1 ths % +12% +11% +15% +1% +12% +13% % UK Pensions-to-average salary, %, in and 7% saw very strong growth in real disposable incomes, which has been in the double digits in the past several years State spends only 3.2% of GDP on health, while the avoidable mortality rate continues to increase 6% 5% 4% 3% Pension-to-salary ratio staying flat at a modest 26%, down from 4% in % Sources: World Bank, Rosstat, Independent Institute of Social Policy Research, Alfa Bank Research 12

14 Banking risks low, but penetration still weak Dependence on foreign debt is not crucial Banks finance only 11% of investments, maturity still short 25 $ bln % of assets 2% 25% % 7% 6% % 13% % % % 15% 1% 5% % Assets, % GDP 34% 44% 54% 63% Loans, % investments 3% 8% 9% 11% Loans >3 years, % total 12% 15% 19% 24% Mortgage market totaled only 2.3% of GDP in % Banking debt Share of banking assets 52.4% n banks are not highly dependent on foreign borrowing, with only 2% of assets funded from abroad Banking penetration still weak, assets-to- GDP was 63% in 27 versus 95% in and 84% in Ukraine n banks have just started to penetrate the mortgage market, mortgages-per-capita only $211.4% 1.3% 2.3% 4.% 5.% 5.5% 7.6% Ukraine Czech Republic Germany US Sources: CBR, Rosstat, Alfa Bank Research 13

15 Restructuring should remain on the agenda Financial infrastructure Budget policy will face the need to increase state social expenditures, including a likely increase in pension payments of some 3% of GDP Pension reform Only 2% of population has transferred pension savings to private management, $15 bln of defined contribution is managed by the State Pension Fund Banking reform Number of banks still exceeds 1, Foreign banks penetration in is low Industrial development Liberalization The role of SMEs remains modest, estimated at 17% of GDP Reform of natural monopolies Cross-subsidization by UES, Gazprom still as high as 3% of GDP Administrative reform The state still has to reinforce its role as a regulator Public sector still employs 16% of population, number of state bureaucrats increased at least 25% since 2 65% 6% 55% 5% 45% 16% 12% -4% -8% -12% Fuel, % of exports and % of federal budget revenues % of exports % 4% % Fuel, % exports (lhs) Rise in imports is limiting growth potential Growth y-o-y, % Manufacturing, growth y-o-y (lhs) Imports, % GDP in 22 fixed prices (rhs) % of fiscal revenues Fuel, % fiscal revenues (rhs) Share of oil in s exports is increasing; some 61% of revenues in 27 came from fuel exports versus 37% in 1995 % GDP 8% 7% 6% 5% 4% 3% 2% 5% 46% 42% 38% 34% 3% 26% 22% 18% 14% 1% Sources: Minfin, Rosstat, Alfa Bank Research 14

16 s challenges s role in the world, 2 s role in the world, 26 14, 14, 12, 12, 1, 1, 8, 8, 6, 6, 4, 4, 2, 2, US Japan India Brazil US India Japan Brazil GDP PPP GDP GDP PPP GDP The gap between and Brazil on the one hand and and India on the other has widened in the past several years has a low SMEs-to-GDP ratio, and with 12% of the population over 65, the economy is not flexible enough Demographic situation suggests the need to increase state social expenditures in coming years 7% 6% 5% 4% 3% 2% 1% % SMEs, % GDP 4% 3% Small SMEs sector, old population 4% 6% 2% 17% 5.% 5.% 5.% 7.% 7.% 12.% 12.% 14.% India Brazil Czech Republic % Population >65 5% 53% Sources: World Bank, IMF, Alfa Bank Research 15