Russia’s economic woes continue
: the recession deepened in the first half of 2015, severely impacting households, while the economy continued to adjust to the 2014 terms-of-trade shock, which saw oil prices being halved within a few months. In addition, investment demand has contracted for a third consecutive year.
Economic policy uncertainty, arising from an unpredictable geopolitical situation and the ongoing sanctions, caused private investment to decline rapidly as capital costs rose and consumer demand evaporated.
The record drop in consumer demand was driven by a sharp contraction in real wages, which fell by an average of 8.5% in the first six months of 2015 - illustrating the severity of the recession. The erosion of real incomes significantly increased the poverty rate and exacerbated the vulnerability of households in the lower 40% of the income distribution.
So, if oil prices remain low, how can Russia grow out of its recession?