BOFIT Forecast for Russia 2016–2018 / 1

Abstract

Following the collapse in oil prices in 2014, Russia’s domestic demand fell by about 10 % last year. GDP contracted 3.7 %. Oil prices declined again in the second half of 2015. Given the oil export price shocks, we expect the Russian GDP to contract by 3 % this year if the oil price averages slightly above $40 a barrel (about 60 % below the average price in 2014). Russian imports slumped by 30 % in 2014–2015, and we expect imports to fall another 10 % this year due to the economic contraction and Russia’s falling export earnings. With rather high inflation eating away at purchasing power, we see domestic demand shrinking substantially in 2016, including a reduction in real government spending. While a gradual rise in oil prices will bring economic respite and revive imports in 2018, economic growth remains slow due to uncertainties and Russia’s poor business environment. The central risks in the forecast involve oil prices and changes in imports.