Russia and Brent - the history of love and fall

It is common place that the Russian economy critically depends on oil price. It this short post we present a simple forecast of the Russian real GDP per capita in 2015 as based on the link between the evolution of the Russian GDP and Brent price. We have borrowed the GDP data from the Total Economy Database (available on Briefing.com) and FRED .

Figure 1 presents the growth rates of Brent price and Russian GDP per capita since 1991.  To the Brent curve, we have added the expected oil price in 2015 - $60. This makes the growth rate in 2015 of -0.4 1/y, i.e. a 40% drop. Figure 1 demonstrates that the Russian economy is more stable than oil price. However, the influence of oil price fluctuations is clear. To illustrate the level of tradeoff between the change in Brent price and the growth of Russian economy we normalize both curves in Figure 1 to their respective (absolute) maximum values after 1995. (Before 2000, Russia passed through a ten-year period of fast recovery after the fall caused by the transition to capitalism since 1991.)  Figure 2 depicts both normalized curves. Here we see almost one-to-one correspondence between the major peaks in two curves, e.g. in 1999  (love history) and 2009 (decline and fall) .   When it comes to the largest changes, the Russian GDP per capita follows the Brent curve with a coefficient 1/6, i.e. the change of 6% in oil price is converted into a 1% change in the GDP per capita. 

Having the estimate of 40% fall in oil price in 2015 (this is a conservative estimate and some experts do not exclude $30 per barrel) one obtains a 7% fall in the Russian economy in 2015.

Figure 1. The growth rate (1/year) of Brent price and real GDP per capita in Russia. 

Figure 2. The growth rate (1/year) of Brent price and real GDP per capita in Russia normalized to their peak values after 2000.