IMF: Russia Growth Recovering

The International Monetary Fund improved its forecast for Russia’s economic growth this year to 1.4%, saying easier financial conditions and higher oil prices would help drive a recovery, a regular IMF report showed on Friday.

The fund, which in October forecast the economy would grow by 1.1% this year, said Russia was exiting a two-year recession thanks to an effective policy response from the government and because the country had robust buffers, news outlets reported.

The IMF cautioned, however, that Russia’s medium-term economic outlook would remain subdued, seeing annual economic growth at around 1.5%.

Russia is heavily dependent on oil exports and was hit hard when crude prices started to crash in 2014. Economic sanctions imposed by western governments as punishment for Russia taking control of Ukraine’s Crimea region dealt the economy another blow.

Recession followed, Russia’s currency—the ruble—was slammed, and many people were hit hard by austerity. Now things are looking up.

“The economy is exiting a two-year recession that, thanks to the authorities’ effective policy response and the existence of robust buffers, proved shallower than past downturns,” IMF staff wrote in the report.

Oil prices slumped to $26 a barrel early last year, but have since bounced back to around $50, thanks partly to production cuts introduced by OPEC producers, CNNMoney reported.

The IMF welcomed Moscow’s plan to bring down its budget deficit, rebuild foreign currency reserves, privatize some state-owned companies and purge weak banks from the financial system.

But it warned that the lingering effects of sanctions could still deter investment, and Russia’s government needed to pursue a much wider reform agenda to reduce the economy’s dependence on oil and other commodities.

Over the next few years, the IMF expects Russia’s economy to grow by about 1.5%. That compares with growth rates of more than 3.5% between 2010 and 2012.

Meanwhile, a weakening of the ruble’s exchange rate is more likely than its strengthening, as the rate is pegged by 70% to the price of crude oil so far, former finance minister Alexei Kudrin, who now chairs the Center for Strategic Development, told reporters on Friday, Tass reported.

“I see a greater possibility for a slump of oil prices than for their growth and that’s why the possibility of a weakening ruble is bigger than of a strengthening ruble,” Kudrin said.

The economic development strategy drafted by the Corporate Social Responsibility envisions a considerable growth of exports of manufactured products and this will cut down the impact of oil prices on the ruble’s rate as a result.

“The exchange rate will stabilize but we’ll need diversification of our exports for this,” Kudrin said.