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Growth is projected to remain robust, as private consumption will benefit from rising wages, household credit and employment, the latter following a bold pension reform. Large infrastructure projects will boost both public and private investment. The VAT increase in early 2019 will dent growth temporarily as disposable incomes fall. Export growth will decline as foreign demand weakens, while imports will rebound in 2020. A weaker rouble and the VAT increase will raise inflation temporarily above the 4% target. Unemployment will increase as employment demand will only partly match higher labour supply following the rise of the retirement age.
Monetary policy should be tightened in response to upward-trending inflation expectations. Despite a strong increase in public spending, fiscal policy remains tight to rebuild the fiscal position, increasing the room to respond in event of a future shock. More targeted public spending, in particular a rise in minimum pensions, could mitigate the impact of higher VAT on income inequality. Structural reforms to improve the business environment would boost longer-term growth.
Source: OECD Economic Outlook 104 database; and Thomson Reuters.
Source: Ministry of Finance; and OECD Economic Outlook 104 database.
Economic Survey of the Russian Federation (survey page)