This 38th issue of the Russia Economic Report provides an assessment of recent economic developments and the outlook for the period 2018-2020.
Global growth is on the uptick amidst strengthening global demand and firming oil prices. Global trade is strengthening as a result, with a noticeable increase in capital inflows to emerging economies, notably China and India. These external developments provide positive tailwinds for Russia’s economy.
Oil prices are anticipated to average $53/bbl in 2017 and rise to $56/bbl in 2018 on strong oil demand and restraint in OPEC and non-OPEC production. The medium-term growth forecast for Russia has been slightly increased since the last Russia Economic Report (May 2017) following a somewhat stronger-than-expected recovery of domestic demand and higher exports.
Supported by higher oil prices and macro stabilization, the Russian economy returned to modest growth in 2017. Yet, growth dynamics were uneven. The growth momentum was especially strong in the second quarter, but it stalled in the third quarter of 2017. Sluggish investment demand appears to be the key factor behind the slowdown. Moreover, the growth composition of 2017 remains similar to the pre-crisis one, driven mostly by mineral resource extraction and non-tradable sectors.
Higher oil prices supported the current account through energy exports. Energy export revenues more than compensated for the significant growth in imports that accompanied a stronger ruble and a recovering domestic demand. Non-oil exports and exports of services also expanded in the first half of 2017, supported by a recovering external demand and higher prices for other commodities.
Unemployment declined slightly in the first half of 2017, while low inflation and a recovering economy allowed real wages to increase. However, real disposable income growth remained negative, driven by contractions in other income sources. The poverty rate in Russia, under its national definition, increased marginally in the first half of 2017, while the share of the vulnerable population continued to grow.
Monetary policy remained prudent and consistent with the inflation-targeting framework. A combination of relatively tight monetary policy and accommodative fiscal policy, together with some one-off factors, led the Central Bank to undershoot the CPI inflation end-year target as early as July 2017.
Russia’s Central Bank bail-out of two large private banks (the second-largest and fifth-largest private banks, jointly equal to 5.2 percent of the banking sector assets) in August-September 2017 points to a continued fragility in the Russian banking system. Concerns over asset quality due to rapid credit growth and connected lending weakened their liquidity positions.
In the first eight months of 2017, the general government fiscal stance improved, helped by higher revenues and tight expenditures. The Russian Government adhered to a path of fiscal consolidation and introduced a new fiscal rule that is expected to smoothen the influence of external volatility on the budget and the real exchange rate. The rule comes into effect in 2019 and will require fiscal consolidation in 2018-2020.
Russia Economic Report 37
The World Bank, May 2017
Russia Economic Report 36
The World Bank, November 2016
Russia Economic Report 35
The World Bank, April 2016
Russia Economic Report 34
The World Bank, September 2015
Russia Economic Report 33
The World Bank, April 2015
Russia Economic Report 32
The World Bank, September 2014
Earlier Russia Economic Reports could be downloaded through the World Bank's Documents & Reports.