Russia's growth is likely to be pulled down due to demographics. The working-age population is likely to continue reducing by 0.3%-0.7% y/y. The participation rate is expected to decline due to ageing of population. A further drop in the neutral jobless rate might be the only possible offset to these trends. However, demographics are expected to depress Russia's potential growth, subtracting about 0.5% over the next five years.

Meanwhile, capital accumulation is expected to slow down and not stop. Ongoing sanctions and the end of the commodity supercycle are expected to depress investment demand. The economy's real interest rate is expected to be higher than in earlier years because of the requirement to maintain current account in healthy surplus amidst external deleveraging, central bank's move towards inflation targeting, increased country risk premia and the public sector's increased call on local savings. However, investment can be helped with healthy profit margins in the economy's tradable sector.

"Given the relatively low capital-to-output ratio and relatively high investment-to-capital ratio, we think the trend for gradual capital accumulation is likely to remain in place even in a changed, tougher economic environment", says JP Morgan.