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16 Jun, 2010 14:30

World Bank lowers Russian growth forecast

The World Bank has lowered its forecast for Russian economic growth in 2010 to 4.5% from the 5.5% predicted earlier.

The bank's chief economist, Zeljko Bogetic, said that Russia was lagging behind other emerging economies because it is more sensitive to swings in the oil price and capital outflows. The country's real GDP in the first quarter of the year rose by 2.9% in the first quarter which is much less than expectations.

“Russia is experiencing a bumpy recovery. It's uneven recovery in the sense that first quarter data was more disappointing than we wanted to see. But nevertheless April data is showing continued recovery of the economy. We do see that unemployment is actually lower in Russia than initially feared and real incomes are growing again for several months. The bank credit is beginning to flow into the economy.”

The World bank says the EU debt crisis will have little impact on Russia due to its limited trade and financial links with the periphery of Europe. Oil prices are expected to stay comfortably over $70/bbl in 2010.

However, it's domestic demand that is expected to provide the main driver of growth, says Bogetic.

“If you you look at the structure, the sources of economic growth both in terms of the demand and sectors we basically see that the growth will primarily come from the domestic demand as unemployment continues to decline and real income continues to grow. It has already grown every month this year. We will see consumption growing and as banks begin to provide more cash for the economy investments are going to pick up as well.”