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The economy is projected to rebound from a deep recession on the back of stronger oil prices, higher wages and lower interest rates, which will boost household consumption and business investment. Structural bottlenecks hamper the diversification of production, and the relatively strong rouble and continued sanctions will restrain non-oil exports. The poverty rate will gradually decline as the labour market strengthens and inflation abates further.
Monetary policy should be eased to support growth, but cautiously to avoid a rebound of inflation. Fiscal tightening, due to spending cuts, might jeopardise the recovery. Additional revenue could come from a higher VAT rate, taxes on the oil and gas sector, and real estate, as well as by broadening the personal income tax base. At the same time, funding is needed for large public investments in education, innovation and infrastructure. Institutional reforms would help lift longer-term growth.
The economy remains relatively closed, as international sanctions hamper higher value added in non-oil activities. The gains from globalisation rest on oil revenues which are unevenly distributed across regions and income groups. Reforming the tax system and investing the gains from higher oil prices in education and infrastructure would help diversify the economy, create more quality jobs and make globalisation beneficial for all.
Economic Survey of the Russian Federation (survey page)