Economic impact of the COVID-19 pandemic in Russia

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Economic impact of the COVID-19 pandemic in Russia (short, easy-to-understand version)

Overview
The COVID-19 outbreak hit Russia’s economy hard in 2020. A drop in global oil demand, a price war in March, travel bans, and factory shutdowns reduced activity at home and abroad. The ruble weakened, unemployment rose, and many businesses faced big losses. The government and the central bank launched large support measures to stabilize the economy and help recovery.

Causes and early effects
- Oil and markets: World oil demand collapsed, oil prices fell sharply after Russia rejected a production-cut deal with OPEC+ and Saudi Arabia launched a price war. This worsened Russia’s economic outlook and pressured the ruble.
- Trade and travel: Reduced trade with China and the shutdown of international travel hurt export and tourism revenue. The tourism sector and airlines were hit hard.
- Ruble and finances: The ruble dropped to multi-year lows, adding pressure to prices and household budgets.

Government and central-bank response
- Early spending: In April 2020, about 1.4 trillion rubles were set aside to fight the virus and cushion the economy.
- Credit support: Banks offered six-month, interest-free loans to help businesses pay employees.
- Monetary policy: The central bank cut the key interest rate to 5.5% in April to support growth.
- Large recovery plan: In June 2020, the government announced a 5 trillion ruble recovery package (potentially up to 7.3 trillion rubles with long-term infrastructure). The plan was designed in three stages: stabilization (through 2020), recovery (2021), and growth (from late 2021). It included labor-market reforms, such as an hourly minimum wage, to boost employment and reduce the shadow economy.
- Tax and business support: In June, President Putin announced measures to raise some taxes on high earners (from 13% to 15% starting in 2021) to fund social programs. He also introduced broad support for families and loans to businesses. IT companies were given a favorable tax regime (profits tax cut from 20% to 3%).

Economic outcomes in 2020
- GDP and income: The IMF and Moody’s projected about a 5% decline in Russia’s GDP for 2020. In the second quarter, GDP fell sharply (around 8.5% year on year). Real incomes and industrial output dropped substantially (disposable income and industrial output down around 8%–9% year on year in parts of 2020).
- Year-end outlook: Forecasts for 2020 generally pointed to a sizable contraction, but some later estimates suggested the economy could bottom out and start recovering in 2021.
- Tourism and airlines: Losses from border closures and reduced travel were huge. Tourism losses were reported around 1.5 trillion rubles, with billions more tied to airline disruptions. Some compensation funding was provided to airlines to offset losses.
- Sector and firm support: Authorities expanded support for key industries and added more companies to the list of “systemically important” firms to ensure access to aid.

Notes and context
- The crisis also contributed to broader financial market volatility and a heavy test for Russia’s economic policy tools.
- The government’s and central bank’s measures aimed to stabilize jobs, support businesses, and lay groundwork for a return to growth as global conditions improved.

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