Russia is a vast, resource-rich country, with immense diversity. After a turbulent political and economic transition in the 1990s, Russia experienced over a decade of high and almost uninterrupted economic growth, driven largely by a super cycle commodity boom, particularly historically high oil prices.
Poverty rates decreased dramatically, and the middle class grew, as more and more people began to enjoy the benefits of inclusive growth. Since 2012, however, the pace of economic growth has slowed, and now with the dual impact of low oil prices and sanctions, Russia finds itself in a period of prolonged economic stagnation. The remarkable achievements of the previous two decades are now at risk of being erased. At 8.2% (US$5/day 2005 PPP terms), the poverty rate in 2015 was at the 2007 level.
Key economic challenges include how to jumpstart the economy to put it back on a path of strong and sustained growth. Russia will have to strike a fine balance between increasing productivity at all levels (country, firm, and individual) and diversifying growth away from a reliance on oil while simultaneously investing in its people and improving the access to and quality of services.
Weakening growth and sharply lower commodity prices, however, have narrowed the room for Russian policy makers to maneuver. Policies to support a smooth fiscal adjustment that distributes the burden across the economy and promotes long-term productivity growth will be critical.
