World Bank says Russian GDP to shrink 4.5% this year

The World Bank's latest report says Russia's GDP will shrink more than expected over the coming year, with the focus to turn to smaller businesses, as VTB24 signs a deal with the EBRD to boost small business lending.

The World Bank's latest report for Russia forecasts the country's economy will shrink by 4.5% in 2009. That's much more gloomy than officials – who see the economy contracting only about 2% and recovering towards the year end.

According to the World Bank, Russia's dependence on energy has become a liability – along with a reliance on capital inflows and borrowing abroad. Klaus Rohland, World Bank Representative in Russia, says it is time to focus on smaller and medium sized enterprises.

“At this point in the crisis, focus should shift to the people and slightly away from the financial sector because people are now affected by the crisis. Small and medium businesses are absolutely important in the long term for Russia because we know from experience in other countries that small and medium enterprises are the key to innovation support is important not only in the crisis but beyond the crisis.”

On Monday, the European Bank for Reconstruction and Development issued a $150 million dollar loan to Russia's retail bank VTB24. It's part of a 5-year program – to support small firms in Russia's regions. VTB24 plans to increase its market share – and has been opening as many as 8,000 new accounts for small enterprises each month.

VTB24 President, Mikhail Zadornov, hopes for a return in the long term – but expects a loss this year.

"This year, our plans are plans are much less ambitious – increasing our portfolio 20% in nominal terms – in Rouble. … I'm absolutely sure that the credit portfolio of all Russian banks will not increase this year. But the banking system is not a victim, it's the head of the economy and creates the conditions for economic growth."

With money now being targeted at the economy, banks will have to show if they can effectively distribute that cash to the population.