Estudos Económicos
Russian Federation

Russian Federation

Population 143.4 million
GDP 9,243 US$
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major macro economic indicators

  2014 2015  2016 (f) 2017 (f)
GDP growth (%) 0.7 -3.7 -0.7 0.8
Inflation (yearly average) (%) 7.8 15.5 7.2 5.5
Budget balance (% GDP) -1.1 -3.5 -3.7 -3.2
Current account balance (% GDP) 2.8 5.2 3.0 3.5
Public debt (% GDP) 16.3 17.7 18.4 19.4


(e) Estimate (f) Forecast


  • Abundant natural resources (oil, gas and metals)
  • Skilled labour force
  • Low public debt and comfortable foreign exchange reserves
  • Assertion of regional and energy power


  • Increased rentier nature of the economy
  • Weak private banking sector
  • Weak infrastructure aggravated by very low level of investment
  • Declining demographics
  • Persistent deficiencies in the business climate


Modest rebound after two years of recession

Positive but weak Russian growth is expected in 2017. Activity in the hydrocarbon sector is unlikely to pick up much: production reached a record level in 2016 (11.2 million bpd), though the lack of investment and the maturity of several oilfields limit prospects for increased production capacity. Meanwhile, at the end of November 2016 Russia made a commitment to the OPEC countries to gradually reduce its output by 300,000 bpd over 6 months. The manufacturing sector (agrifood, chemicals/pharmaceuticals) could benefit from a slight upturn in domestic demand. Construction activity could be stimulated by various projects, in particular, in anticipation of the 2018 football world cup. Private investment is expected to remain hampered by the persistent lack of business confidence, high interest rates. Private consumption, the main driver of activity, will be buoyed by the slow increase in household income, associated, in particular, with a less restrictive fiscal policy, which, in particular, authorises an increase in retirement pensions. Real income could also benefit from the moderation in inflation.

Continuing the trend observed in late 2016, price growth could slow in 2017 because of the strengthening of the ruble's exchange rate, which limits imported inflation. Monetary policy (interest rate at 10% since September 2-16) is expected to be eased very gradually so as not to threaten the central bank's inflation target (4% in 2018).

In the absence of real progress in the conflict in East Ukraine, the sanctions imposed by the EU could be maintained beyond the end of January 2017, the date on which the member countries will be re-examining the matter. If the sanctions applied by the US are lifted or eased, after Donald Trump becomes president, improved access to international finance could help the country post stronger growth in 2017.


Improvement in the fiscal and current account balance

Fiscal income is projected to rise in 2017 thanks to changes in taxation of the hydrocarbon sector (50% of total) and the profits of public-sector companies. The moderate rise in oil prices will thus boost State revenues. Further privatisations (VTB Bank and the shipping firm, Sovcomflot, in particular), after those of Alrosa, Bashneft and Rosneft in 2016, will also contribute to the improvement of the public finances. The 2017 draft budget includes an increase in social spending, offset by cuts to other items. The aim is to gradually bring down the deficit, while sustaining demand in the run up to the presidential elections in 2018 without fuelling inflation.

The State, whose debt remains low, has comfortable foreign exchange reserves (around 11 months of imports in late October 2016), plus sovereign fund assets totalling over USD 100 billion (more than 8% of GDP) at end October 2016.

The current account surplus is expected to increase due to a rise in hydrocarbon exports (about 2/3 of total exports), which however is likely to be modest if the commitment to reduce production is respected. Manufactured products, in contrast, are expected to remain uncompetitive on external markets. The upturn in domestic demand, even though it is moderate, could however be reflected in higher imports, limiting the improvement in the current account balance.

The dollar's appreciation could put pressure on the ruble's exchange rate, which should, nonetheless, be strengthened by favourable developments in oil prices and capital flows: FDIs are not expected to rebound in the absence of real improvement in the Ukraine situation and in governance; however, capital outflows will slow, because of the reduction in external debt repayments (about USD 80 billion in 2017 compared with 90 billion in 2016) and incentives for repatriating funds held abroad.

The banking sector's position continues to worsen. Solvency and liquidity risks are increasing because of the deteriorating quality of the portfolio (the non-performing loan ratio was close to 10% of the total in late 2016). The number of banking institutions is expected to continue to fall (down from over 780 in 2014 to 600 in late 2016).


Political situation expected to remain stable and business climate still poor

The crisis in Ukraine played a unifying role among the Russian population and has reinforced Vladimir Putin's popularity. The September 2016 parliamentary elections confirmed the dominance of President Putin's United Russia Party (54% of the votes cast), but on a low turnout (48% compared with 60% in 2011). Dissatisfaction exists, but State control of the media and the internet considerably limits the ability of opposition movements to organise and express themselves.

Governance shortcomings and the lack of corporate transparency strongly weaken the business climate. Russia has been downgraded on most of the World Bank's indicators, especially regarding regulatory quality and has made no progress on the fight against corruption.


Last update: September 20167

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