World Bank downdgrades Russia growth to 4%

15th September 2011, Comments 0 comments

The World Bank downgraded Russia's 2011 growth forecast to 4.0% on Thursday, citing global risks and sluggish domestic demand while warning against an unsustainable long-term budget.

It was the second downward revision from the 4.5-percent figure initially predicted by the bank in November. Last year, Russia's economy also grew 4.0, recovering slightly from its 7.9-percent contraction in 2009.

"With heightened risks to global growth and lower commodity prices, we now expect Russia's real GDP to grow 4 percent in 2011," the World Bank said in its latest report.

Production and manufacturing growth slowed from last year, and "widespread expectations that growth in the nontradable sectors will soon accelerate... have not fully materialised," the report said.

"Low consumer confidence" from delayed recovery in incomes has also stalled the anticipated growth of domestic demand, the bank said.

Russia's own projection for economic growth in 2011 has been 4.2 percent, a target set by Prime Minister Vladimir Putin in April.

The bank noted that high oil price and low unemployment "will help sustain robust growth in domestic consumption, which, in turn, will support overall growth during the second half of 2011," the report said.

But it cautioned that despite the added oil revenues, "the new budget plan for 2012-14 raises concerns about the long-term fiscal sustainability of Russia's public finances."

The Russian press this week discussed the latest leaked draft of the budget for 2012-2014, in which spending grew by 425 billion rubles ($14 billion) to account for pre-election pledges. It is set for approval September 20.

Russia's 2011 budget is based on an average annual oil price of $105 dollars a barrel.

With growth still considerably slower than in pre-crisis years, Russia would need to improve effectiveness of public expenditures in order to target poverty, the report said.

While Russia's limited trade with indebted European countries like Greece will minimise "contagion", its economy is still vulnerable to oil prices and capital flows.

© 2011 AFP

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