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After rapid growth fuelled by high oil prices, Russia’s convergence to advanced economy income levels has stalled before 2014, with recent growth prospects falling far behind other emerging markets. The 2014 crisis led to a significant revamp of macroeconomic policies but the long-term growth prospects are still obstructed by sluggish productivity growth, low capital accumulation and shrinking labour inputs. Progress with diversification of the economy away from oil and gas has been limited so far and tailwinds from sizeable currency depreciation have waned. The economy is still highly reliant on extractive industries and long-standing structural challenges (poor business environment, low private investment, ageing labour force, labour market rigidities, increasing role of state ownership) continue to impede long-term growth potential.

Russian authorities are aware of the challenge of sub-optimal long-term growth and its’ impact on disposable incomes and, in the medium-to-long term, social stability. The new government has articulated a set of ambitious policy objectives for the next six years. These include raising GDP growth above the global average and cutting poverty in half by 2025. Investment should increase to 25% of GDP, from 21–22% now. To achieve these objectives, public spending on infrastructure, health, and education would increase, and the state’s footprint in the economy would fall, particularly in the banking sector. However, additional reforms that would support the development of the private sector and increase private spending might be necessary to further boost productivity and investments in line with government targets.

This is the second in a series of two seminars co-organised by Bruegel and the , with the support of the , and it is funded by the European Union.