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Economic growth is projected to continue its moderate pace. Assumed stable oil prices, better business sentiment and improved credit conditions will support investment and consumption. Unemployment will remain low, but inflation will decline further on the back of sluggish demand and low import prices. However, low productivity, a shrinking workforce, a relatively strong rouble and international sanctions weigh on the outlook. Income inequality and poverty remain high.
The central bank has space for further easing. The new fiscal rule will reduce budgetary volatility stemming from oil price fluctuations. The announced fiscal tightening is projected to be gradual. This should limit the impact on growth and inequality, but there is scope for more spending, especially to raise growth and well-being. A higher VAT rate and lower labour taxes would reduce informality and improve productivity. Energy sector tax reform would help increase revenue, and fund infrastructure investment.
Household borrowing has picked up in line with the economic recovery, while corporate borrowing is sluggish. Better domestic and external conditions have decreased both rouble and foreign-denominated overdue loans. The high loan-to-income ratio among households with low incomes could pose a vulnerability. The central bank should actively use macro-prudential tools. The central bank's takeover of two major private banks in mid-2017 helped maintain stability, but increased the already large state influence in the banking sector.
Economic Survey of the Russian Federation (survey page)