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World Bank forecasts Russia's GDP to shrink 4.5 per cent in 2009 news
31 March 2009

In its semi-annual report, the World Bank forecast Russian economy to contract by 4.5 per cent in 2009 against the 3 per cent predicted last November.

Russia's economy which is largely dependent on export revenues of oil and gas products, has been severely affected by the slump in oil prices, fall in demand, and tightening of credit  available for companies,  driving the economy into deep recession causing poverty and unemployment. The World Bank said in its Russian economic report on Monday.

The figure is more than double the more optimistic Russian government estimate of 2.2 per cent shrinkage in GDP for the year, which had hoped that the worst wouild soon be over and the economy would be on a recovery path by the end of the year.

The World Bank is more pessimistic in its assessment.

''As the crisis continues to spread to the real economy around the world, initial expectations that Russia and other countries will recover fast are no longer likely,'' the report said.

"With a much worse global financial outlook and oil prices in the $45 a barrel range, Russia's economy is likely to contract by 4.5 per cent in 2009, with further downside risks," the World Bank said. The first signs of recovery could be seen only in the first or second quarter of 2010, the report added.

Russia's GDP grew on an average 7 per cent during the last decade and in 2008, reported a growth of 5.6 per cent.

During the first two months of 2009, the GDP plummeted by 8.8 per cent and 7.3 per cent, respectively.

Meanwhile, inflation is expected to be in the range of 11 to 13 per cent this year.

The bank said the current slump in Russia would be deeper and more prolonged than the financial turmoil of 1998 when the government defaulted on debt payments and millions of citizens lost their savings due to a 70-per cent devaluation of the rouble, the Russian currency.

Analysts are expecting further deterioration in the world economy and in Russia.

However, a deeper and prolonged crisis would lead to major social issues. The World Bank estimates Russia's unemployment rate to double to more than 12 per cent in 2009, compared to 6.2 per cent in 2008. The number of poor may climb by 2.75 million, resulting in a 16 per cent poverty rate.

The Russian cabinet this month approved the national budget with a deficit of 7.4 per cent, the first one in 10 years. The report described it as "a massive reversal of the fiscal position from the 4.1 per cent surplus in 2008."

The Bank urged the Russian government to shift focus from the financial sector and companies to more vulnerable sectors which could trigger social unrest. It said that funds equivalent to about 1 per cent of GDP should be attributed  for one year to provide temporary boost to social improvement programmes to help the poor including families with children, pensioners and the unemployed.

Steps should be taken in ''dealing with the worst infrastructure bottlenecks, strengthening public administration and fighting corruption'' the Bank cautioned.

The report mentioned Russia has sufficient reserves to finance the budget shortfall though possibility of further fiscal stimulus is limited.

The country has the third largest stockpile of foreign currency of $435 billion (end of 2008), next only to China and Japan. It had close to $600 billion in July 2008 part of which had to be utilised to manage the rouble devaluation against the dollar.

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World Bank forecasts Russia's GDP to shrink 4.5 per cent in 2009