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Russia Economic Report

Latest Issue: 
  • no. 43

Recession and Growth under the Shadow of a Pandemic

July 6, 2020: 43rd Issue of the Russia Economic Report

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The World Bank’s Russia Economic Report analyzes recent economic developments, presents the medium-term economic outlook, and provides an in-depth analysis of a particular topic.

Economic Developments

The COVID-19 pandemic has triggered a deep global economic recession. Global industrial production suffered its steepest fall since the global financial crisis. Prices for crude oil, Russia’s largest export, have plummeted since the start of the year, while oil demand is expected to decline by an unprecedented 8 percent in 2020.

GDP in the Euro Area – Russia's largest trading partner – contracted at an annualized rate of 13.6 percent in Q1 2020 — the steepest fall in the bloc's existence. China – Russia's second-largest trading partner – saw its GDP fall by 6.8 percent in Q1 2020, although it has now embarked on a fragile recovery.

Russia is heading toward a recession, with negative growth in most sectors in 2020. Manufacturing contracted 10 percent, with severe negative impacts in metals production and transport vehicles. Mineral-resource extraction decreased by 3.2 percent.

The COVID-19 pandemic has resulted in reduced fiscal revenues and a weakened ruble. In the first five months of 2020, the federal budget registered a deficit of Rub406.6 billion compared to a surplus of Rub1,283.3 billion in the same period in 2019. Heightened global risk aversion on financial markets, further exacerbated by a slump in oil prices, has weakened the ruble by 11 percent since the beginning of 2020.

Russian banks entered the crisis with reasonable capital buffers and comfortable liquidity. However, high levels of Non-Performing Loans (close to 10 percent) can be expected to increase further, as household and corporate finances deteriorate due to disruptions in economic activity and rising unemployment.

Unemployment increased to 6.1 percent in May 2020, up from 4.5 percent a year earlier – an increase of around 1.1 million people. The number of registered unemployed increased even more by 1.4 million people and reached 2.3 million people in May 2020.

As in many countries, people’s standards of living in Russia are being significantly affected, including schooling, health services, and mobility. People engaged in the retail, tourism, hospitality, and entertainment industries are most affected in the short run, due to lockdown measures and their limited ability to work online.

Short-term impacts could be followed by deeper medium-long-term impacts. Sectors not initially affected, like agriculture, could be affected in later stages if disruptions in internal logistics, international trade, or financial conditions make resuming full production difficult. And, overburdened health services may have to prepare for future increased demand due to delayed treatments and a possible resurgence of infections.

Economic Outlook

Although forecasts are subject to high uncertainty, a baseline scenario suggests that Russia’s GDP could contract by as much as 6.0 percent in 2020, an 11-year low. If containment measures are fully lifted in the second half of 2020, a moderate recovery could get underway. Some positive momentum is expected to spill over to 2021, pushing GDP growth to 2.7 percent, and in 2022 to 3.1 percent.

As uncertainty diminishes, household consumption is expected to lead the recovery, and investment is expected to increase by about 3 percent in 2021. However, even with positive GDP growth ahead, GDP levels in 2022 will barely catch up to pre-pandemic levels. 

The general government budget is expected to turn to deficit in 2020-22. With oil prices dropping below the threshold price of $42.4 per barrel, specified in the fiscal rule, general government deficits of 7.2, 1.6 and 0.5 percent of GDP are projected to materialize in 2020-22. 

Risks to Russia’s economy include a more protracted pandemic accompanied by a prolongation of containment measures, a slow and shallow global economic recovery, a further drop in commodity prices, lasting impacts on households and firms, and disruptions in global value chains. Pre-existing financial-sector vulnerabilities could be amplified by the pandemic. In a more adverse scenario, GDP could contract by 9.6 percent in 2020 and recover by a marginal 0.1 percent in 2021. 

Special Focus: Education

Russia is ranked 34th in the World Bank’s human capital index, and has become one of the global leaders in education outcomes. However, Russia’s education system still faces some important challenges, which are being exacerbated by the COVID-19 pandemic.

Although they perform relatively well in traditional or cognitive skills measured by the OECD’s Programme for International Student Assessment (PISA), Russian students fare poorly in collaborative problem-solving skills. The development of such skills is not only important for the future labor market, but can also be part of an effective response to the COVID-19 crisis, by raising personal resilience, efficiency, and employability of young people.

The pandemic has led to school closures which in turn could lead to a learning loss of more than one-third of a Russian school year. If schools remain closed for five months this year, the learning loss of the average student could equal 16 points in PISA reading scores. A five-month school closure could reduce marginal future earnings by about 2.5 percent per year over a student’s working life.

The current crisis underscores the need to tackle structural imbalances in the education system and speed-up important reforms.

Better internet connectivity and adoption of digital-based programs could help all students and teachers benefit from new learning platforms, which could also help close gaps in learning outcomes between different socioeconomic groups across Russia.

Rigorous impact evaluation and independent quality assurance would help reduce disparities and increase efficiency, supported by initiatives such as coaching programs for teaching staff, sharing of best practices, and inter-regional exchanges.

Higher education could be improved with a clear national strategy for internationalization, so that universities will attract more international students once the pandemic is over.

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Previous Russia Economic Reports

Weaker Global Outlook Sharpens Focus on Domestic Reforms

Russia Economic Report 42
The World Bank, December 2019

Download PDF | Press Release


Modest Growth; Focus on Informality

Russia Economic Report 41
The World Bank, June 2019

Download PDF | Press Release


Russia’s Economy: Preserving Stability, Doubling Growth, Halving Poverty – How?

Russia Economic Report 40
The World Bank, December 2018

Download PDF Press Release


The Russian Economy: Modest Growth Ahead

Russia Economic Report 39
The World Bank, May 2018

Download PDF | Press Release


Russia's Recovery: How Strong are its Shoots?

Russia Economic Report 38
The World Bank, November 2017

Download PDF Press Release


From Recession to Recovery

Russia Economic Report 37
The World Bank, May 2017

Download PDF | Press Release


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


Apurva Sanghi

Lead Economist for the Russian Federation

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(495) 745-7000

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