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After two years of recession, the economy will return to growth in 2017, as higher real wages boost private consumption and lower interest rate support investment. However, structural bottlenecks continue to hinder further diversification of the economy. The strength of the recovery will also remain dependent on the rebound of oil prices. The poverty rate, which increased from 11% in 2014 to 13% in 2015, will progressively decline as the labour market strengthens and inflation slows down.
Tight monetary policy has successfully brought down inflation, and now can be eased further to support the recovery, especially investment. Fiscal policy has been rightly accommodative during the recession. Fiscal consolidation plans for 2017 and 2018 aim at reducing the headline deficit by about 1% of GDP per year on average. A less tight fiscal policy is projected, as considerable economic slack remains and the electoral cycle may push up public spending.
Public investment needs in education, innovation and infrastructures are high, and meeting them will be essential to boost growth and ensure that all Russians benefit from rising prosperity. However, by themselves, oil revenues can no longer be counted on. Additional revenue should be raised with reforms to the VAT, the taxation of state-owned enterprises, higher taxation on the hydrocarbon sector and higher excise taxes. Over the medium term, re-establishing fiscal rules that limit the pro-cyclical use of oil revenue would contribute to raise fiscal room for bad times.
Economic Survey of the Russian Federation (survey page)