## IMF Survey : Cheaper Oil And Sanctions Weigh On Russia’s Growth Outlook

_IMF News, August 3, 2015_

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## Bibliographic details
- Published: August 3, 2015

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### Overview
- Russia’s economy is expected to contract by 3.4 percent in 2015, although growth should return in 2016.
- Medium-term growth prospects are modest due to slow progress in implementing structural reforms.
- The IMF’s assessment attributes the near-term downturn primarily to the dual external shock of lower oil prices and geopolitical tensions, including sanctions.

### Growth outlook and key projections
- 2015: expected contraction of 3.4 percent.
- 2016: growth expected to return (no numerical growth rate provided for 2016 in the text).
- Medium term: IMF staff expect weak GDP growth of around 1.5 percent.

### Drivers of the slowdown
- Oil price decline: a major effect on the Russian economy.
- Geopolitical tensions and sanctions:
  - March 2014: United States, European Union, Japan and other countries began imposing sanctions related to Crimea and Eastern Ukraine.
  - August (2014): Russia imposed counter sanctions on agricultural and food imports.
  - U.S. and EU sanctions targeted financial services and the energy sector, among other areas.
- Impact of sanctions:
  - IMF estimates suggest sanctions and counter sanctions might have initially reduced real GDP by 1 to 1½ percent.
  - Prolonged sanctions may compound already declining productivity growth.
  - The cumulative output loss could amount to 9 percent of GDP over the medium term.
  - Authors note these model-driven results are subject to significant uncertainty.
- Investment and consumption are likely to remain sluggish; sanctions affect external access to financial markets and new investment technology.

### Fiscal policy recommendations
- Support for short-term fiscal stimulus applied in the 2015 budget.
- Recommendation to follow stimulus with gradual fiscal consolidation over the medium term to:
  - adjust to lower oil prices,
  - rebuild buffers,
  - safeguard intergenerational equity.
- Specific fiscal measures suggested:
  - Reforming the pension system to deliver significant fiscal savings over time.
  - Better targeting social transfers.
  - Reducing energy subsidies.
  - Reducing tax exemptions.
  - Safeguarding public investment, education and health care in spending plans.
- Fiscal framework:
  - Russia introduced an oil-price based fiscal rule in December 2012.
  - Report suggests strengthening the rule to account for oil price volatility to allow fiscal policy to respond more quickly and generate more savings.

### Monetary policy assessment
- Central Bank of Russia actions:
  - Appropriately allowed the ruble to float in response to external shocks.
  - Set medium-term target for inflation at 4 percent.
  - After initial tightening late in 2014, monetary conditions gradually normalized and inflation expectations became more anchored.
  - Central Bank gradually eased monetary conditions during the first half of 2015.
- Inflation path projected in the report:
  - About 12 percent by the end of 2015.
  - Close to 8 percent at the end of 2016.
- Guidance: monetary policy normalization should continue at a prudent pace, commensurate with declines in inflation and inflation expectations, while assessing upside risks to inflation.

### Structural reform agenda
- Key constraints on medium-term growth:
  - Slow-moving structural reforms.
  - Sluggish investment.
  - Adverse population dynamics.
  - Large state footprint, limited competition, and concentration in several sectors contributing to low productivity growth.
- Recommended reforms to boost investment and trade:
  - Strengthen governance and protection of property rights.
  - Cut regulatory red tape.
  - Improve customs administration and reduce trade barriers.
  - Increase competition in domestic markets.
  - Make public investment more transparent and efficient.

### Risks and scenarios
- Upside risks to inflation and balance-of-payments pressures if geopolitical tensions escalate.
- Possible additional external shocks could produce:
  - Additional balance-of-payment pressures.
  - Significant deterioration in confidence.
  - Ruble depreciation if capital outflows surge, leading to higher inflation.
  - Greater uncertainty hurting investment and raising precautionary savings, depressing domestic demand.
  - Lower and/or more volatile oil prices could further dampen the outlook.
- Benefit limitation caveat: gains from a more competitive exchange rate may be limited if authorities pursue inward-looking policies.

### Spillovers
- Russian policy actions helped stabilize the economy and mitigate spillovers.
- Nonetheless, countries with close links to Russia through trade, remittances or foreign direct investment face sizeable negative consequences.
- Most affected: the Commonwealth of Independent States, Ukraine, and Baltic countries.

*Source: IMF Survey : Cheaper Oil And Sanctions Weigh On Russia’s Growth Outlook (IMF Survey, August 3, 2015).*

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## Content in this bundle

- [Cr15211pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/scr/2015/_cr15211pdf.pdf){rel="external" type="application/pdf"}
- [Cr15212pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/scr/2015/_cr15212pdf.pdf){rel="external" type="application/pdf"}

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [In The News](https://www.imf.org/en/news/search)
- [NEW! Podcast with mission chief Ernesto Ramirez Rigo](http://www.imf.org/external/pubs/ft/survey/so/SinglePodcastHighlight.aspx?podcastid=362)
- [Press release](http://www.imf.org/external/np/sec/pr/2015/pr15368.htm)
- [The IMF and Russia](http://www.imf.org/external/country/RUS/index.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar080315b_