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18 Jan, 2012 14:42

Analyst: World Bank forecast for Russia too pessimistic

The World Bank has cut its 2012 global economy growth forecast to 2.5 percent. The bank expects the Russian economy to grow 3.5 percent, down from its previous forecast of 4 percent. But some analysts believe such predictions are too pessimistic.

Jacob Nell, chief economist at Morgan Stanley Russia, says the reasons behind this worsening outlook are the impact of the Euro zone debt crisis and the slow recovery from the recession of 2009.  The planned increase in government spending, which includes cutting payroll taxes, increasing public sector wages and military pensions, contributed more negatively to the World Bank forecast.

Yet Nell says some positive aspects have been disregarded. In the second half of 2011, the economy recovered faster and the volume of investment in Russia and the volume of consumption increased.  But he says capital inflow is challenged by “a lot of political uncertainty with the presidential elections coming up,” which he expects to go away after the new President takes office.

Although the World Bank report and many analysts expect the Russian economy to grow faster than EU countries, its dependency on oil prices and investment flowing out of country damages the economy, according to Nell.