The economy is bottoming out, barely avoiding a recession. The falling oil price and the tensions regarding the conflict in Ukraine are undermining investor and consumer confidence. The rouble has sharply depreciated as a result of both factors, which has cushioned the economy to some extent. The strength of the recovery will depend on the flexibility of the economy and its ability to increase trade with non-sanctioning countries. Such a redirection of trade takes time, and real GDP growth is accordingly projected to stagnate next year, before slowly accelerating to around 1½ per cent in 2016 in the wake of an import-substituting investment recovery.
Monetary policy has moved to full inflation targeting earlier than planned. Inflation has been driven up by sanctions-related price increases and the pass-through of rouble depreciation. The termination of the peg of the rouble to the dollar and the euro will give the monetary authorities greater freedom to adjust the policy stance for domestic requirements. The fiscal rule does not provide much room for stimulus. This difficult combination of weak growth and higher inflation highlights the need for structural reforms.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.
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