IMF improves Russia outlook, warns of bleak long-term picture

A Russian national flag flies over the Central Bank headquarters in Moscow, Russia, May 17, 2016. REUTERS/Sergei Karpukhin/File Photo

MOSCOW (Reuters) - Russia’s economic outlook has improved recently thanks to higher oil prices but a lack of reforms means its longer-term prospects still look bleak, the International Monetary Fund said on Tuesday.

Russia’s gross domestic product is now seen falling 0.8 percent in 2016 before growing 1.1 percent in 2017, the IMF said. In the previous semi-annual report in April, the Fund had predicted GDP would shrink by 1.8 percent this year and grow by 0.8 percent next year.

“Russia’s economy shows signs of stabilization as it is adjusting to the dual shock from oil prices and sanctions, and financial conditions eased after bank capital buffers were replenished with public funds,” the IMF said.

The revision brings the Fund’s figures closer to Moscow’s official view as the international institution priced in the latest recovery in prices for crude oil, Russia’s key export. Brent crude futures hovered near $50 per barrel in early October compared with around $40 per barrel in April when the previous economic report was released.

Russia’s export-dependent economy sank into recession, defined as two consecutive quarters of contraction, in late 2014, after it annexed Crimea and took a hit from Western sanctions together with falling prices for commodities.

Now Russia is close to exiting recession but its outlook for the next year and beyond “remains subdued given long-standing structural bottlenecks and the impact of sanctions on productivity and investment,” the IMF said.

The IMF said inflation, the central bank’s key target, will slow further as the impact of a rouble depreciation over the past two years fades. The Fund also said Russia should avoid excessive tightening of fiscal policy even though the economy is expected to return to growth by the end of the year.

The IMF once again called for better financial supervision and more efficient credit allocation, which it said could help the world’s largest country by area to secure growth in the medium term.

Reporting by Andrey Ostroukh and Alexander Winning; Editing by Catherine Evans