World Economy

WB Warns Russia of Economic Stagnation

WB Warns Russia of Economic StagnationWB Warns Russia of Economic Stagnation

Russia’s economy is set to stagnate in the next two years as the country pays the price for the Ukraine crisis, lack of structural reforms and uncertain economic policy, the World Bank predicted last week.

In a much more pessimistic outlook than the Russian government’s, the Washington-based lender forecast the economy would grow by just 0.3 percent next year and could contract if the Ukraine crisis escalates, Reuters reported.

In 2016 Russian gross domestic product will increase by 0.4 percent, it said. The government estimates growth of 1.2 percent in 2015 and 2 percent in 2016.

“We don’t believe that investment growth is picking up as much as the government believes,” Birgit Hansl, said the World Bank’s economist for Russia.

“Their assumption is that monopolies will be investing... We expect less strong investment impulse,” she said.

Sanctions imposed by the United States and Europe over Russia’s involvement in Ukraine will dampen investment, while consumption growth in coming years - a major driver behind Russia’s economy - will be subdued.

“More restricted access for Russian companies and banks to external financing (due to sanctions) is likely to have already affected investment decisions, leading to a delay or a scaling back of investment programs,” the World Bank said in its bi-annual report on Russia.

“We expect that this trend will worsen during the second half of 2014 and throughout 2015, when the impact of the additional sanctions will be felt and may lead to a period of near stagnation.”

Consumption growth will likely slow to 0.5 percent in 2015 from about 2 percent this year, the bank forecasts.

It expects the economy to grow 0.5 percent this year, in line with the government’s forecast, after predicting in March after Russia’s annexation of Ukraine’s Crimea region, that Russia was at risk of sliding into recession.

“The good news is that Russia did escape recession,” Hansl said.

The Bank warned that if the conflict around Ukraine escalates, the economy may contract by 0.9 percent in 2015.