Between 2014 and 2016, the Russian economy
suffered from a currency crisis caused by the collapse of oil prices
and the country’s engagement in the conflict with Ukraine. Although the
crisis was overcome in the second half of 2016 thanks to prudent fiscal
and monetary policies and higher oil prices, economic recovery remains
weak and Russia’s medium-term growth prospects look rather
disappointing.
The weak growth prospects are caused by
several factors including: (i) adverse demographic trends – a declining
working-age population and ageing of the population; (ii) a poor
business and investment climate; (iii) difficulty in diversifying away
from the dominant role of the hydrocarbon sector; (iv) Western sanctions
on Russia in response to the annexation of Crimea and Russian support
for separatists in the eastern Ukraine Donbas region, and Russian
countersanctions.
To increase potential growth, Russia needs
comprehensive economic and institutional reforms that, in turn, will be
conditioned by political reforms and by improved economic and political
relationships with the United States, the European Union and Russia’s
neighbours.
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