Russia: The long road to recovery

On the 27th of April 2016 in Brussels, the Centre for European Political Studies (CEPS) organised the presentation of the recent World Bank Russia Economic Report. The full version of the report is available here.

World Bank Lead Economist and Program Leader Birgit Hansl presented the recent trends of key economic indicators and provided 2016-18 economic outlook for Russia. She also analysed strategic policy issues.

As a result of the difficult economic adjustment to the twin shocks of a steep oil price decline and start of the sanctions regime in 2014, Russia’s economy went through a deep recession, which peaked in the second quarter of 2015. Following a brief rally early in the year, a further decline in global oil prices in August 2015 derailed an anticipated recovery, and real GDP contracted by a total of 3.7 percent over the year.

The Russian economy is projected to face a long journey to recovery. The conditions that pushed Russia’s economy into recession show slow signs of abating, and the World Bank’s current baseline scenario anticipates another year of negative growth of 1.9 percent in 2016. In 2017 GDP growth is projected to return to a positive, albeit modest, growth rate of 1.1 percent.

The ruble depreciation has created a rare opportunity to enhance the competitiveness of Russia’s non-resource economy and there is renewed attention to Russia’s longstanding policy discussion on export diversification and expansion into nontraditional markets. But Russia still faces serious structural constraints and historical challenges on its export competitiveness which might be difficult to overcome quickly.

Policy uncertainty is the biggest obstacle to investment and consumption decisions.

Assessing the effect of sanctions, Birgit Hansl presented her key assumption, based on the comparison of two different scenarios for 2017, with and without sanctions. As a result, in an environment, where sanctions disappear, investment would have most positive impact on growth, the movement of capital would be unrestricted. It would also positively impact consumption in the country.