• Russia’s economic performance has been very poor after the drop in oil prices in 2015 that led to a deep recession.
• The EPI score was close to 71%, or a D level, in 2015, the lowest level since the 2009 crisis, but is projected to improve to 78.9%, or a D+ level, in 2016 mainly because of lower inflation.
• With oil prices at below $50 dollars per barrel, the Russian economy is likely to go through a painful adjustment in the next few years

For an economy with two thirds of exports and half of the government budget revenues coming from oil and gas, the latest downturn in the global oil market means Russia’s recession may stretch into next year for the longest slump in two decades. The western sanctions on Russia related to the crisis in Ukraine have also played a role in amplifying the negative effects of lower oil prices on the Russian economy by limiting the ability of Russian companies to borrow money on the western financial markets.

GDP fell by about 3.7% in 2015, driven by a large drop in exports in dollar terms and a deep recession in the industrial sector, but is projected to fall by 1.8% in 2016. The ruble lost almost half of its value after the Central Bank of Russia stopped selling its reserves on the market to protect the currency. A large ruble devaluation increased the prices of imported goods, pushing inflation to almost 16% in 2015, up from about 8% in 2014. The government has already cut budget outlays and dipped into one of its sovereign wealth funds, the Reserve Fund, to help cover the shortfall. The unemployment level increased only slightly to 6.5% in 2016, up from 5.6% in 2015, driven by the recession in the economy.

With oil prices at below $50 dollars per barrel, the Russian economy is likely to go through a painful adjustment in the next few years. The 5-Minute Economist projects Russia’s EPI score to improve in the medium term from a D level currently to a B by 2021, mainly driven GDP recovery after the recession and slowdown in inflation, if the ruble and oil prices stabilize.