Recent Economic Developments
Real GDP growth decelerated to 0.7 percent in the first half of 2019 from 2.3 percent in 2018, owing to lackluster domestic and external demand. Economic sanctions continued to weigh on economic performance.
Real disposable incomes fell by 1.3 percent in the first half of 2019, reflecting a hike in value added tax (VAT) rates in January 2019, and inflation accelerated. A decline in public investment, partly related to the slow process of setting up and launching a number of national projects, negatively affected total investment.
Mineral resource extraction, financial services, and the transportation sector led growth, while trade and real estate acted as significant drags.
A sound macroeconomic framework, with relatively high levels of international reserves (US$519.8 billion), low external debt levels (about 30 percent of GDP), and comfortable import cover (18.4 months), positions Russia to absorb external shocks well.
In 2018, the general government posted a surplus of 2.9 percent of GDP compared to a deficit of 1.5 percent of GDP in 2017. To adjust the budget system to the new fiscal rule, the Government conducted fiscal consolidation, bringing the nonoil/gas federal budget deficit to 6 percent of GDP in 2018 from 10.3 percent in 2013.
The Central Bank of Russia (CBR) moved to inflation targeting in 2015, which was a welcome move. Monetary policy remains consistent with the inflation-targeting regime (the target is set at 4 percent).
Russia’s banking sector has been relatively stable. The CBR has continued its cleanup of the sector by revoking the licenses of some smaller banks and focusing on the financial rehabilitation of large financial institutions. The state continues to dominate the banking sector, and increasing competition in the financial sector is one of the priorities of the CBR’s financial sector development strategy for 2019–21.
The poverty rate, using the national definition (the share of the population with a monthly income per capita of less than RUB 10,088 in 2017), fell in 2018 by 0.6 percentage points to 12.6 percent.
The unemployment rate fell to 4.7 percent in the first half of 2019 (from 4.9 percent in 2018), while real wages rose by 6.8 percent. Wage growth was highest in the public sector.
Pensions increased by 0.8 percent in real terms. Incomes at the bottom of the distribution grew slightly faster than at the top, supported by an increase in the minimum wage and new family benefits.
Priority policy objectives include limiting the role of the state in the economy, increasing investment, and promoting fair competition, as well as measures to improve investments in human capital.
> LEARN MORE: Russia Monthly Economic Developments
Growth in Russia is expected to be 1.2 percent in 2019; 1.6 percent in 2020; and 1.8 percent in 2021. A less restrictive monetary policy and increased spending on national projects is expected to help foster growth. National projects are expected to contribute about 0.1 percentage points (pp) to GDP growth in 2020 and about 0.2-0.3 pp in 2021.
The moderate poverty rate is expected to continue to decline in 2019 and through 2021, although vulnerability needs to be monitored. Increasing the existing means-tested programs and expanding their reach would help to reach the goal of halving poverty by 2024.
> LEARN MORE: Russia Economic Reports
Last Updated: Dec 04, 2019