Russia is suffering a severe recession, but the rebound in commodity prices and the expected effects of policy stimulus point to some recovery through 2009 and into 2010. If oil prices remain around recent levels the current account will remain in surplus and net private capital outflows will ease, allowing the exchange rate and foreign exchange reserves to consolidate their recent recovery.

The fall-out from the global financial crisis will sharply reduce real GDP growth in Russia through 2009, with a pick-up expected in 2010. With a reversal in the substantial rise in oil and metal prices, the pattern of terms of trade gains fuelling rapid growth in domestic demand has come to an end. Inflation has risen strongly, but may now have peaked and should decline in 2009-10. Fiscal and current account balances are expected to worsen sharply.

Real GDP growth is set to accelerate in 2007, before moderating over the projection period as oil and metal prices stabilise at their current high levels. Domestic demand will remain strong, but the exceptional rates of investment growth observed in the first half will not be sustained. Fuelled by relaxed monetary conditions and the tightening of the labour market, inflation is set to hit double digits at the end of the year and will, in any case, exceed the central bank target of 8% by a wide margin.

Russia needs to do more to attract foreign direct investment, in the wake of its move in early July to make the rouble fully convertible. This would strengthen its economy and reduce its reliance on oil and gas revenues, OECD experts say.

When Irish government minister Liam Lawlor died tragically in an accident while being chauffeured along Moscow’s Leningrad Shosse in October 2005, local newspapers pointed out that high-speed crashes are common along such boulevards due to the often reckless driving of Muscovites. At a time when the rest of Europe tightens its seatbelts, Russia is only beginning to wake up to its alarming traffic accident statistics.