Russia’s Economy Set For Gradual Improvement

July 26, 2016

Russia's EconomyFollowing several months of economic instability, the Russian economy is staged for a period of adjustment and the return of economic growth. These were the findings of a recent report by the International Monetary Fund, which concluded that measures taken by the Russian government to soften the blow of the recession there had been highly effective.

Russia’s economic woes hearken back to the commodity collapse of 2015, which dealt a heavy blow to the largely commodity-based Russian economy. Adding to the problems faced by Russia were sanctions imposed on it after the seizing of the Crimean Peninsula and parts of eastern Ukraine. These sanctions, though not immediately damaging, gradually choked off Russia’s export markets, worsening the existing commodity crisis. This set of circumstances had led to a general decline over the past months which has weakened consumer spending and decreased wages across Russia.

Now, however, there appears to be light at the end of the tunnel for the struggling Russian economy. Based on the projections of the IMF report, economic contraction in 2016 is expected to be limited to 1.2 percent. This contraction will largely be driven by a lack of investment and consumer spending internally, though difficulties in exporting Russian goods into foreign markets will also play a part. Beginning in 2017, the report predicts that Russia’s economy will begin to experience growth, albeit at a limited rate. Data from Russia’s central bank also indicated that, following this gradual recovery, the country’s runaway inflation would begin to subside, falling from the current rate of 7.9 percent to around four percent by the end of 2018. The projections, however, also assumed a slight recovery of oil prices, to which the strength of Russia’s economy is closely linked. The favorable economic projections also did not strengthen the ruble, which has continued to fall against the USD over the past week.