Russia Economic Report
Latest Issue: 
  • no. 37


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From Recession to Recovery

This 37th issue of the Russia Economic Report provides an assessment of the economic developments and outlook for the period 2017-2019.

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Highlights

  • Amidst weakening external headwinds, rising oil prices, and growing macro-stability, the Russian economy showed encouraging signs of overcoming the recession it entered in 2014.
  • Headline economic and financial trends and indicators are improving.
  • In Russian regions, adjustment has taken place through massive expenditure cuts, as opposed to revenue mobilization, with social sectors and capital spending hit the hardest.
  • The government passed a three-year federal budget law and introduced currency interventions in the domestic market.
  • Expenditure consolidation – more than revenue mobilization – is the central plank of the three-year federal budget law.
  • Consumption is expected to drive growth in 2017-2019, with investment playing a supporting role.
  • Russia's growth projections remain sensitive to oil prices.
  • The poverty rate is expected to decrease because of decelerated inflation and recoveries in private incomes and consumption.
  • The medium-term prognosis of the Russian economy is favorable. However, Russia’s longer-term growth prospects remained constrained by its low productivity.

Summary

After almost two years of recession, Russia has entered a path to recovery. With global growth and trade starting to strengthen at the end of 2016, Russia’s economy showed signs of overcoming the recession caused by the shocks of low oil prices and economic sanctions. Tradable sectors benefitted from the relative price adjustment and stabilizing commodity prices in the second half of 2016, and became the main drivers of economic growth, partly through increased exports. There was a positive momentum in non-tradable sectors as well, which slowed the pace of contraction compared to 2015. The incipient positive momentum appears to have spilled into early 2017.

A moderate recovery of the global economy is expected for 2017, on the back of continued solid growth by commodity importers and a pickup in commodity exporters during the year. Russia is heading toward a moderate growth rate over the 2017-to-2019 period (between 1.3% and 1.4%), supported by rising oil prices and macroeconomic stability.

Russia had adapted well compared to other oil exporters. Oil prices plunged by 77% from June 2014 to January 2016, severely undermining the activities of energy exporters. However, the macroeconomic implications of the shock varied across countries. For Russia, growth adjustment happened earlier than for many oil exporters, reflecting the early impact of economic sanctions and the high inflation associated with the introduction of a floating exchange-rate regime.

Despite adverse terms-of-trade conditions in 2016 and continued restrictions on Russia’s access to international capital markets, the balance of payment remained stable, with the real effective exchange rate slightly depreciating. The current account surplus shrank as the trade surplus decreased on lower export receipts, especially in the first half of the year. An incipient import recovery was an additional negative factor for the trade balance in the second half of 2016. Meanwhile, net capital outflows decreased on the back of lower debt payments. Relatively tight monetary policy increased interest in ruble assets and limited net capital outflows. Improved terms-of-trade conditions helped the current account in the first quarter of 2017, which translated into larger net capital outflows.

Unemployment in Russia decreased slightly, inflation slowed and real-wage growth resumed. But poverty also increased, as the sharp decline in pension income more than offset the incipient recovery in real wages. However, the prevalence of extreme poverty remained marginal.


Recent Russia Economic Reports

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The Russian Economy Inches Forward

Russia Economic Report 36
The World Bank, November 2016

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The Long Journey to Recovery

Russia Economic Report 35
The World Bank, April 2016

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Balancing Economic Adjustment and Transformation

Russia Economic Report 34
The World Bank, September 2015

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The Dawn of a New Economic Era?

Russia Economic Report 33
The World Bank, April 2015

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Policy Uncertainty Clouds Mediaum-Term Prospects

Russia Economic Report 32
The World Bank, September 2014

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Earlier Russia Economic Reports could be downloaded through the World Bank's Documents & Reports.



Experts

Apurva Sanghi

Lead Economist for the Russian Federation

Media contacts

Marina Vasilieva
(495) 745-7000
Email



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INTERACTIVE DATA
The Macro Poverty Outlook is a semi-annual report, which analyses macro and poverty developments in developing countries. It is jointly produced by the Poverty & Equity and Macroeconomics and Fiscal Management Global Practices of the World Bank.
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