Economic and Political Overview

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In this page: Economic Outline | Political Outline | COVID-19 Country Response

 

Economic Outline

Economic Overview

On February 24th 2022, Russia initiated a military conflict on the Ukrainian territory, which profoundly upsets the current political context in both countries and will have substantial political and economic ramifications. For the ongoing updates on the developments of Russia-Ukraine conflict please consult the dedicated pages on BBC News.

The latest specific information on economic sanctions against Russia in response to the conflict in Ukraine is available below:
•    What sanctions are being imposed on Russia
•    The list of global sanctions on Russia for the war in Ukraine

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

After several years of negative growth due to massive capital flight, the collapse of the rouble, falling oil prices and trade sanctions imposed by the West after the Ukrainian crisis, the Russian economy had returned to modest growth since 2017, driven mainly by mineral resource extraction and private consumption. However, due to the COVID-19 pandemic, the economy contracted to -3% GDP in 2020, as exports, investment activity and consumer demand all plunge. According to the IMF’s estimates, GDP growth rebounded strongly in 2021 (+4,7%), supported by dynamic exports and domestic consumption. Growth was expected to slow down to 2.9% in 2022 and 2% in 2023, with the waning of recovery momentum in private spending and investment activity (IMF ; Focus Economics). However, the invasion of Ukraine by Russian military on February 24th 2022 prompted exceptionally harsh Western sanctions, including the freezing of central bank assets, aimed at pushing the Russian economy into a deep and lasting recession. Due to this economic war, the economy is now forecast to contract by -7.5% in 2022 according to Coface. High inflation will also negatively impact private consumption, which is the traditional growth driver (Coface).

The Russian economy entered the COVID-19 crisis with a sound fiscal framework and substantial policy space thanks to prudent and well-tuned macroeconomic and monetary policies (IMF). The general government balance and debt deteriorated in 2020 due to the strong public health and economic package (equivalent to 3.5% GDP) adopted in response to the crisis, the sharp drop in oil prices and lockdowns, but indicators improved in 2021 with the recovery. The recovery was mainly supported by non-commodity sectors, retail trade and higher consumer spending (Euler Hermes). The public deficit recovered from a deficit of -4.4% GDP in 2020 to -0.6% GDP in 2021 (IMF). Public finances were expected to reach balance starting 2022, with a surplus of 0.1% GDP in 2022 and 0.2% GDP in 2023 (IMF), supported by higher oil prices. However, due to the war in Ukraine and the Western sanctions hurting Russia’s financial and energy sectors, public deficit is now expected to widen to -6.5% GDP, according to Coface. Similarly, the public debt level was expected to decrease slowly, from 19.3% GDP in 2020 to 17.9% GDP in 2021 and 2022 and 17.7% GDP in 2023 (IMF). However, Coface now forecasts public debt to increase to 26% GDP in 2022. Compared to other emerging markets, this is a relatively low ratio. In addition, Russia benefits from substantial savings in the National Wealth Fund. According to IMF estimates, inflation increased from 3.4% in 2020 to 5.9% in 2021, and was expected to decrease to 4.8% in 2022 and 4.5% in 2023. However, Western sanctions put considerable downward pressure on the Russian rouble, which was down close to 30% against the dollar a week after the invasion. As a result, inflation is now projected to reach 23% in 2022 (Coface). The Russian central bank raised its key interest rate to 20% and could increase it even further (Coface). Rating agencies Fitch and Moody's downgraded Russia's sovereign debt to ‘junk’ status. Western sanctions are expected to spark a banking crisis leading Russian major banks to bankruptcy. Before the start of the war, the government’s key priorities were to manage the fluctuating COVID-19 pandemic evolution, as well as to achieve budgetary balance and stability. In addition, the government was pursuing the de-dollarization of the economy (Euler Hermes). Russia was already facing many challenges: a large state footprint, weak governance and institutions, insufficient infrastructure, low levels of competitiveness, underinvestment, low production capacity, dependence on raw materials, poor economic climate, lack of structural reforms and ageing of the population.
 
The unemployment rate was falling before the COVID-19 crisis, but real wages had also fallen. Social inequalities remain high, especially between large cities and rural areas. Only 1% of the population owns around 70% of private assets. Despite the emergence of an urban middle class, the poverty rate remains at around 13%. A middle class protest movement calls for an end to corruption and patronage. According to IMF estimates, the unemployment rate increased to 5.8% in 2020 under the effect of the pandemic, but decreased to 4.9% in 2021 and was forecast to decrease to 4.6% in 2022 and 2023. The war in Ukraine will darken the outlook, with high inflation reducing the purchasing power. 

 
Main Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 1.001.002.002.002.00
GDP (Constant Prices, Annual % Change) -2.74.7-3.4-2.31.5
GDP per Capita (USD) 1012141414
General Government Balance (in % of GDP) -4.40.5-2.4-1.6-1.0
General Government Gross Debt (in % of GDP) 19.217.016.216.916.4
Inflation Rate (%) 3.46.713.85.04.0
Unemployment Rate (% of the Labour Force) 5.84.84.04.34.4
Current Account (billions USD) 35.37122.27259.35236.06187.39
Current Account (in % of GDP) 2.46.912.211.18.7

Source: IMF – World Economic Outlook Database, Latest available data

Note: (e) Estimated Data

 

Main Sectors of Industry

Russia has significant natural resources. It is the world's second largest producer of natural gas and the third largest producer of petroleum, but also one of the main producers and exporters of diamonds, nickel and platinum. In addition to the Russia-China gas pipeline launched late 2019, two new gas pipelines (to Germany and Turkey) are scheduled to start operating. Despite its large area, Russia has relatively little arable land due to unfavourable climatic conditions. The country nevertheless owns 10% of the world's agricultural land and is one of the main exporters of cereals. The northern regions of the country focus mainly on livestock, while the southern regions and western Siberia produce cereals. Agriculture contributes 3.7% of the national GDP and employs around 6% of the total working population.
 
Industry accounts for 30% of Russia's GDP and employs 27% of the workforce. The country inherited most of the industrial bases of the Soviet Union. The most developed sectors are chemistry, metallurgy, mechanics, construction and defence. In response to economic sanctions from the United States and the EU, the government has implemented an import substitution policy that could boost domestic production.
 
The service sector employs 67% of the population and generates 56.3% of the GDP. Since the 1998 financial crisis, the banking sector has not undergone complete restructuring. Given the size of the country, the transport, communications and trade sectors are particularly important. Tourism is also becoming an important source of income.
 
In 2020, due to the COVID-19 pandemic, most economic sectors decreased. Tourism, restaurants, entertainment and the beauty industry were the hardest sectors hit. To a lesser extent, the agriculture sector has been temporarily impacted by the lockdown measures preventing seasonal workers from coming to Russia, but it proved to be very resilient to the crisis. Total losses of 1.78 million jobs were concentrated in four sectors: manufacturing, construction, retail and hospitality, and health/social services (World Bank, quoting Kommersant). In 2021, the recovery was mainly supported by non-commodity sectors including agriculture, construction and manufacturing, as well as retail trade (Euler Hermes).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 5.8 26.8 67.4
Value Added (in % of GDP) 3.7 30.0 56.3
Value Added (Annual % Change) 0.2 -3.2 -2.2

Source: World Bank, Latest available data.

 

Find more information about your business sector on our service Market reports.

Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
61,5/100
World Rank:
92
Regional Rank:
42

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
5.72/10
World Rank:
60/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

 

Country Risk

See the country risk analysis provided by Coface.

 

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Political Outline

Current Political Leaders
President: Vladimir Vladimirovich Putin (since 7 May 2012 ; re-elected on March 18th 2018) - United Russia
Prime Minister: Mikhail Mishustin (since 16 January 2020) - United Russia
Next Election Dates
Presidential: March 2024
State Duma: September 2026
Current Political Context
On February 24th 2022, Russia initiated a military conflict on the Ukrainian territory, which profoundly upsets the current political context in both countries and will have substantial political and economic ramifications. For the ongoing updates on the developments of Russia-Ukraine conflict please consult the dedicated pages on BBC News.

Vladimir Putin, who has been in power for 17 years, started a new six-year presidential term in May 2018. Continuing from his previous term, he emphasises conservative values, anti-Westernism and the nationalism of the great powers. During the municipal and regional elections held in September 2019, the United Russia party lost a third of its seats in the Moscow City Legislative Assembly. His popularity was undermined by the pension reform. Weakened approval ratings resulted in the abrupt resignation of the government, including Prime Minister Dmitry Medvedev, in January 2020. Mikhail Mishustin, the former head of the federal tax service, took office as the new prime minister. In 2020, amid the COVID-19 pandemic, Putin called for a referendum that validated constitutional changes that allow him to seek re-election in 2024 and potentially remain in power until 2036. Mishustin’s new influence was demonstrated in the reshuffle that took place in November 2020 and that brought business-minded technocrats in the cabinet. The September 2021 Duma elections, in which United Russia secured its constitutional majority, were tainted by fraud and preceded by a wave of repression. The main opposition figure Aleksei Navalnyi was jailed.

Internationally, as Joe Biden took office as the new US president in January 2021, bilateral relations with the US have entered another period of uncertainty. The first summit between Joe Biden and Vladimir Putin was held in June 2021, signalling the launch of a dialogue on security issues. After agreeing to normalise the situation in north-western Syria in 2019, Russia and Turkey's relationship benefitted again from the Nagorno-Karabakh peace deal brokered by Moscow and signed by the leaders of Azerbaijan and Armenia in November 2020. In November 2021, a standoff at the Poland-Belarus border between Polish border guards and thousands of migrants attempting to pass through Belarus on the way to the EU reactivated the tensions between Russia and the EU. For the first time in three years, the Russian and Ukrainian presidents met over the Donbass conflict in December 2019, but no peace solution was found. After an increasingly hostile rhetoric and prolonged military build-up in 2021, Russia invaded Ukraine on February 24th 2022. Western countries adopted an unprecedented range of sanctions aimed at pushing the Russian economy into a deep recession and isolating the country from the rest of the world. Major Asian states have signed up to export controls on semi-conductors, and at the 25 February UN Security Council vote condemning the invasion of Ukraine, China opted for abstention. As Ukrainian President Zelensky called on the population to defend their country, Russian forces faced an unexpected resistance. In Russia, demonstrations against the aggression were severely repressed, and accessed to social media was restricted. Risks to domestic stability will increase as the war goes on and the economic and humanitarian costs mount.
Main Political Parties
In Russia, the powers of the executive were greatly increased by the adoption of a new constitution in 1993. The political apparatus is overwhelmingly in the hands of the United Russia party. While opposition parties are authorised, there is little chance for these parties to wield any real power. The main parties are:

-United Russia
: centrist, remains the largest and seemingly most popular party in Russia, self declared focus on 'Russian conservatism'
-Communist Party of the Russian Federation (CPRF): left-wing, seeks to establish modern socialism
-A Fair Russia (CP): centre-left, ally of United Russia
-Liberal Democratic Party of Russia (LDPR): far-right, opposes communism and capitalism, self described as centrist, an extreme right nationalist political party.
Type of State
Russia is a federal republic.
Executive Power
The President is the Head of State. He is elected by universal suffrage for six years. He is the commander-in-chief of the army and the real centre of power in the country. The Prime Minister is the Head of Government. He is appointed by the President, with the approval of the lower house of Parliament, and manages the everyday business of the country.
Legislative Power
Russia has a two-chamber legislative power. The Parliament, called the Federal Assembly, is composed of: the Council of the Federation (upper chamber), which has 170 seats and the members are appointed by the regional governors and legislative institutions, for a four-year term of office; and the State Douma (lower chamber), which has 450 seats; its members are elected by direct universal suffrage from partisan lists, for a four-year term.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
150/180
 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Not Free
Political Freedom:
7/7
Civil Liberties:
6/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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COVID-19 Country Response

COVID-19 epidemic evolution

To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the disease in the Russian Federation, please visit the governmental portal “StopCoronavirus” (in Russian). The website of the Ministry of Health dedicated to COVID-19 (in Russian) also provides additional information.
For the international outlook you can consult the latest
situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.

Sanitary measures

To find out about the latest public health situation in the Russian Federation and the current sanitary measures in vigour, please consult the relevant pages on the governmental portal “StopCoronavirus” (in Russian). An updated list of the national government's response measures taken to contain the coronavirus infection can be found on the official website of the Russian government (in Russian). Country-specific information is available in English on the website of the US embassy in Russia.
Latest information in English on the public health situation, relevant advice and COVID-19 safety measures are available on the website of the World Health Organization’s Health System Recovery Response page dedicated to the
Russian Federation.

Travel restrictions

The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.
The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.

Import & export restrictions

For the up-to-date information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID-19 outbreak (including eventual restrictions on imports and exports, if applicable), please consult the website of the Federal Customs Service.
For a general overview of trade restrictions due to COVID-19 pandemic, please consult the section dedicated to the Russian Federation on the
International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

For the information on the economic recovery scheme put in place by the Russian government to address the impact of the COVID-19 pandemic on the national economy, please visit the dedicated section on the official governmental portal “StopCoronavirus” (in Russian). For an overview in English of the economic package, refer to KPMG's website.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Russian government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to Russia in the
IMF’s Policy Tracker platform.

Support plan for businesses

The Russian government adopted several measures to help businesses to deal with the economic impacts of the COVID-19 epidemic on their activity, which can be consulted here (in Russian).
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the OECD's SME Covid-19 Policy Responses document.

You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.

Support plan for exporters


 

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Latest Update: November 2022