MOSCOW: Russia’s battered economy is set to return to growth in early 2017, according to Prime Minister Dmitry Medvedev. “We understand the conditions in which our economy has been developing. It, unfortunately, was cut off from the foreign source of financing and from a variety of foreign suppliers,” Medvedev said in an interview on national television, as quoted by Reuters.
Since Russia’s annexation of Crimea in March 2014, the United States and European Union have ratcheted up sanctions against the country. This included blacklisting Russian officials, tightening restrictions on state banks and corporations and effectively cutting off the country from Western debt markets. The onset of the oil-price collapse in mid-2014 has dealt another major blow to Russia. The world’s third-largest oil producer has been in recession ever since, contracting for six consecutive quarters.
Oil prices rose sharply last week after members of the Organization of the Petroleum Exporting Counties (OPEC) agreed to a modest production freeze in Algeria. OPEC could extend an invitation to Russia to join in on the production freeze later this year. The 14-member producer group is expected to finalize the deal at its next formal meeting in Vienna November 30. Russia’s gross domestic product (GDP) contracted at an annualized 0.6% in the second quarter, following a 1.2% year-over-year decline in January-March. Russia’s economy contracted 3.7% in 2015 and is forecast to decline a further 1.2% this year, according to revised estimates from the International Monetary Fund.
Russia’s central bank expects growth to return to positive territory in the latter half of 2016, paving the way for a slow but steady recovery next year. However, central bank chief Elvira Nabiullina stated that Russia’s old model of economic growth has run its course, necessitating a change in direction for the Eurasian country. “The old model of economic growth has exhausted itself. The new model should be based on investment,” said Nabiullina. The Russian government expects GDP to expand 0.8% in 2017. According to a Reuters poll, inflation will decline to just over 6% by the end of the year as the central bank keeps a tight lid on monetary policy. However, the central bank is unlikely to achieve its 4% inflation target next year.
