GDP is projected to fall by around 3% in 2015, and to grow less than 1% in 2016. This weak turnaround is supported by the recovery of oil prices, better international relations achieved in the first half of 2015 and on the success of import substitution programmes. A spike in consumer price inflation, which has peaked at around 17%, resulted in a sharp fall in real wages, weighing on private consumption. The current account remains in surplus because lower revenues from oil and gas exports are more than offset by falling imports, which reflect weak domestic demand and sanctions.
The planned widening of the budget deficit, which is due to the automatic stabilisers, is appropriate. Particular care is needed to protect those with low income against the risk of poverty in the wake of the large fall in real wages. Reserve funds should be refilled by enacting postponed privatisation plans. Monetary policy needs to continue to pay close attention to financial sector stability and therefore a quick return to the inflation targeting framework could be premature. Monetary policy should be further eased in view of the exchange rate appreciation. Measures to reign in corruption reduce the role of the state in the economy and make the rule of law more effective should be swiftly implemented.
Investment is falling in the wake of sanctions that imposed constraints on long-term financing, which are especially binding for SMEs. The government is planning to support investment projects to replace imports. In the absence of effective implementation of reforms improving the environment for doing business, boosting investment activity dependent on public support will likely have negative consequences for productivity and potential growth.