The moderate recovery that was under way at the end of 2013 has been halted by the turbulence related to the events in Ukraine. Associated increased uncertainties and capital flight are now weighing on investor confidence. Consumption growth will weaken as real income growth slows and consumer credit becomes more expensive. The weak rouble will provide some support to the slowing economy and the budget.<\/p>\n
The higher fiscal revenues from the increasing rouble value of oil revenues (reflecting rouble depreciation) should be used to support the weaker domestic economy. Priority should be given to growth-enhancing spending programmes, in particular education, innovation and active labour market programmes. A temporary deviation from the medium-term fiscal framework should be reversed once the economy regains momentum.<\/p>\n
The Central Bank of Russia should maintain its transition schedule to a full inflation-targeting framework, but will have to balance transitory inflation changes related to currency movements against the need to prevent inflation expectations from unanchoring.<\/p>\n