Page 48 - bne magazine July 2022_20220704

48 I Special Report bne July 2022
Retail, accommodation and food, transport and construction sectors, where low-income households comprise a significant share of the workforce, were hit hardest. Loss of employment and income have been the main transmission mechanisms of the crisis for low-income households.
Unemployment has been consistently high in recent years, running between 12.6% and 14.1% for most of 2020 and 2021. But unemployment dropped dramatically to 10.4% in June
2021, but has remained at the still uncomfortably high level of between 11.1% and 11.3% since then. Youth unemployment is even higher, averaging at about 20% in the same period.
The government introduced wage support for formal employees and increased targeted social assistance to existing beneficiaries to minimise the negative consequences of the crisis in the short run. However, these measures will not reach the 5.6mn people presently not covered by the current social protection system,
and also exclude the 4mn refugees currently residing in the country who rely on the informal sector.
And finally, Turkey has lost control of inflation, which has climbed steadily from 12.9% in the fourth quarter of 2020 to the current rate of 73.5% in May.
Despair index
Russia has been reporting a despair index on a par with many of the
EU countries in recent years. Unemployment fell to a post-Soviet record low of 3.6% in October 2018 as the economy started to recover from
a four-year long recession. Inflation also fell to a post-Soviet record low 2.2% in January 2018. With a poverty rate averaging about 12.8% that gave Russia a despair index of 18.6 – one
of the best in Europe and on a par
with Czechia, Europe's least desperate country pre-crises. (Czechia is currently suffering from its highest level of inflation for almost three decades).
Given the soaring inflation and the looming threat of stagflation across the
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entire region everyone’s despair index has risen to around 30 now or worse.
Ukraine has done less well, as in the last three decades it has failed to implement any meaningful reforms and has been one of the poorest countries in Europe, despite its vast human, agricultural and industrial potential. In bne IntelliNews’ last pan-regional despair survey in May 2020 Ukraine had a despair index score of 42.3, the same level as sanctioned Russia suffered from in May this year, when its despair rating peaked.
But things were going well for Ukraine in the months before the war as it started to feel the benefits from a post- COVID bounce-back. Unemployment had fallen back to a post-Soviet low
of 7.3% in the third quarter of 2019, inflation had reached a post-Soviet nadir of 2.3% in September 2020 but poverty remained stubbornly high
at 27%, when measured on a scale comparable to Russia. Combined that gave Ukraine a despair index of 36.6, still uncomfortably high, due to the high levels of poverty in the country.
In the current survey Ukraine’s poverty is measured by the World Bank rating, which sets the bar very low at $5 a day, not a minimum salary, a change that reflects the fact that Ukraine remains
a truly poor nation by the World Bank’s standards, while Russia’s much higher poverty line is a reflection of the fact that Russia is the only emerging market that has been reclassified “high income” by the United Nations Development Programme (UNDP) in the last decade.
Russia, Ukraine, Turkey despair index
Under the World Bank’s definition of poverty Ukraine’s rate falls to only
2%, which is understated if comparing Ukraine and Russia directly. However, for the calculation of the final despair index result in the first quarter, we used the latest estimate by the World Bank that warned the poverty rate could jump to 90% as a result of war. As there is a war going on all of the indicators
at the moment are largely guesses.
Getting a clear grip on the situation in Turkey is also difficult, as the government is deliberately obfuscating the data to bury the bad news. Turkey has a relatively modest poverty rate of 9%, but actually, asthelineisalsosetat$5aday,thisisin fact a very high level and far worse than Ukraine. Unemployment rates in Ukraine and Turkey are on a par and stuck at a little more than 10%. So it
is inflation that makes the difference.
The official inflation rate is currently 73.5%, which gives a despair index of 93.8, but the real rate of inflation is probably closer to 150%, giving
a despair rating of 170.3.
The government’s inability to control inflation is causing the population real economic pain and the Turks,
by this measure, are suffering
more than Ukrainians are.
With elections looming the high despair score is a danger for Turkish President Recep Tayyip Erdogan, but he has such a complete hold on the political process and the media he has successfully managed to transfer blame elsewhere.
Source: bne IntelliNews, World Bank, national statistic agencies