BOFIT Forecast for Russia 2015–2017 / 2

Abstract

With the collapse of oil prices in 2014, the Russian economy has contracted this year. Assuming the oil price is slightly below $55 a barrel, our forecast sees Russian GDP shrinking around 4 % this year. Fixed investment is depressed by uncertainty, while last winter’s surge in inflation continues to discourage private consumption. Government spending is set to contract in real terms. Russia’s oil exports are experiencing unexpectedly robust volume growth. Imports have fallen and are expected to be about 25 % lower this year than in 2014. For 2016–2017, we assume a moderate rise in the oil price while the effects of the 2014 price collapse will continue to weigh on the economy still in 2016. We expect GDP and imports to contract slightly in 2016 and then make a slow recovery. Thereafter, growth will remain low as opportunities for growth have been curtailed by low fixed investment and systemic deficiencies that have not been addressed. Tensions in eastern Ukraine, sanctions, and lack of clarity about measures to restrict economic activity and trade in Russia will sustain uncertainty. Implementing stimulus has been difficult through monetary policy, and budget constraints limit the government’s options on the fiscal side. The forecast is surrounded by large risks, especially with respect to fixed investment and imports.