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Russia’s economy is largely based on natural resources, with the world’s largest natural gas reserves, second largest coal reserves and eighth largest oil reserves.

The Russian economy is more solid today than it was in 2014-15. Since the 2015 crisis, the government and the central bank have worked to reduce the country’s oil dependency. This mission has now been accomplished. In 2019, the equilibrium oil price was only USD 42 a barrel, down from USD 113 five years earlier. Public finances and external accounts are solid. The Russian economy should be able to cope with the COVID-19 shock and the deep decline in international commodity prices even though the real GDP is expected to contract significantly for the first time since the 2015 crisis. 

In the medium term, economic growth is likely to continue to hover at around 1.5-1.7%, well below the growth rate recorded over the period 2000-2007. Structural constraints weigh on potential growth: the dependency on commodities is still high, the labour force has declined (in 2018, the population decreased for the first time by 0.06% despite the positive flow of migrants), and above all, the strong presence of the State in the economy and the weak business environment (notably rule of law and control of corruption) weigh on private investment.

To boost potential growth, president Putin implemented important reforms after his comfortable re-election in March 2018 by raising the retirement age, promoting immigration and launching a vast 6 years public spending programme. However, this latter could be delayed with the COVID-19 crisis.

On the political front, a big institutional reform was adopted following a referendum on 1 July 2020. This reform allows president Putin to run for two-more six years presidential terms after his current fourth term ends in 2024 or to become head of the “new” State Council, and have additional powers to deal with strategic matters such as domestic and foreign policy directions.

ABOUT US Three teams of economists (OECD countries research, emerging economies and country risk, banking economics) make up BNP Paribas Economic Research Department.
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