Russia Economic Report, June 2019, No. 41: Modest Growth; Focus on Informality

Real GDP growth in Russia surpassed expectations in 2018, reaching 2.3 percent, mostly due to one off effects of energy construction. Forecasted growth of 1.2 percent in 2019 and 1.8 percent in 2020 and 2021 reflects a more modest outlook. Russia’s macro-fiscal buffers remain strong, with fiscal surpluses across all tiers of government and low public-debt levels. When compared to advanced economies, Russia spends less on health and education. Rebalancing in favor of these categories could improve the overall efficiency of public spending. Short-term inflationary risks have abated, with the Bank of Russia signaling a return to a neutral policy rate. Lending activity is recovering, but the banking sector remains afflicted with high concentration and state dominance. Having eased slightly, the poverty rate remains in double digits with many households close to the poverty line and lacking formal employment. Informal employment is rising in the face of close-to-zero net job creation by medium-sized and large formal enterprises. Key risks to medium-term growth include the expansion of economic sanctions, renewed financial turmoil in EMDEs, a dramatic drop in oil prices, and souring of the global trade environment. The recent double-digit expansion in household credit may also pose a risk to financial stability in the case of a deterioration in the macroeconomic environment.