The economic impact of COVID-19 in Russia

On the positive side, Russia manages its macro economy well. However, its fiscal reserves are not unlimited and the recent massive fall in oil prices has not been matched by a similar decline in the ruble exchange rate which means potential extra problems for the budget. Furthermore, monetary policy will have less of a role to play in dealing with this type of crisis. This means that Russia like other countries will face difficult trade-offs in dealing with the crisis at a time when some of the previously announced economic policy changes have not been well received by the public.

The corona virus crisis will destroy both lives and economies as it spreads across the globe. Fortunately, the corona virus death toll in Russia so far is relatively modest compared to many other countries, but the economy is most certainly heading for very difficult times. This is (again) due to the fact that the Russian economy is too dependent on the developments of international oil prices (see e.g. Becker, 2016a,b). In recent years, Russia had to deal with two severe declines in oil prices that hit its economy, first in connection with the global financial crises 2008/09, and second, in 2014/15, when there was a fall in oil prices simultaneously with Russia being hit by international sanctions after the illegal annexation of Crimea. Although these episodes were very costly for the Russian economy, they also provided important lessons for policy makers on fiscal, monetary and exchange rate policies that come in handy today. They also contributed with data on the relationship between large movements in oil prices and the effects they had on GDP growth in Russia. This is useful at this stage to assess what can happen with the economy after the significant decline in oil prices that has followed in the course of the corona outbreak.

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