Russia has undergone significant changes since the collapse of the Soviet Union, moving from a centrally planned economy towards a more market-based system. Both economic growth and reform have stalled in recent years, however, and Russia remains a predominantly statist economy with a high concentration of wealth in officials’ hands. Economic reforms in the 1990s privatized most industry, with notable exceptions in the energy, transportation, banking, and defense-related sectors. The protection of property rights is still weak, and the state continues to interfere in the free operation of the private sector.
Russia is one of the world’s leading producers of oil and natural gas and is also a top exporter of metals such as steel and primary aluminum. Russia’s reliance on commodity exports makes it vulnerable to boom and bust cycles that follow the volatile swings in global prices. The economy, which had averaged 7% growth during the 1998-2008 period as oil prices rose rapidly, has seen diminishing growth rates since then due to the exhaustion of Russia’s commodity-based growth model.
A combination of falling oil prices, international sanctions, and structural limitations pushed Russia into a deep recession in 2015, with the GDP falling by close to 4%. The downturn continued through 2016, with GDP contracting by 0.6%. Government support for import substitution has increased recently in an effort to diversify the economy away from extractive industries. Russia is heavily dependent on the movement of world commodity prices and the Central Bank of Russia estimates that if oil prices remain below $40 per barrel in 2017, the resulting shock would cause GDP to fall by up to 5%.