World Bank improves forecast of Russia's GDP

World Bank improves forecast of Russia's GDP
Russian GDP growth to turn positive in 2017 says World Bank
By bne IntelliNews November 10, 2016

The World Bank (WB) has marginally improved its estimate for the contraction of the Russian economy from -0.8% this year to -0.6%, according to its 36th Russia Economic Report published on November 9.

The bank had in June predicted that Russia's GDP would drop this year by 1.2% in June. WB analysts now believe that the peak of the crisis passed in the second half of 2016 and that the Russian economy will recover from here.

The Russian Ministry of Economic Development believes that this year's GDP decline will be 0.5-0.6%, and in 2017 it will grow by about 1%.

The World Bank staff estimates point to increasingly favourable terms of trade, which began to spur domestic demand growth, even against the background of weak external demand.

"The positive effect of the terms of trade, along with more stable macroeconomic conditions have a positive impact on the mood of consumers and investors, which will lead to the recovery of domestic demand and provide a small economic growth in 2017-2018 years," the World Bank said.

The assessment is based on the forecast average price of oil in 2016 at $ 43.3 per barrel, increasing in 2017 to $ 55.2 per barrel and $ 59.9 in 2018.

Explaining the prospects of changes in oil prices, the World Bank notes that in 2017, especially in the second half of the year, oil consumption will begin to exceed the volume of its production.

The current forecast assumes that Opec will be able to limit the volume of world oil production and that the production of oil in the US next year will start to increase again.

However, this forecast is associated with significant risks. The price may be higher than the forecast if Opec cuts oil production by more than expected, or if there are supply disruptions in any of a number of countries such as Libya, Nigeria and Venezuela.

Downside risks are associated with weak demand, a return to the previous volume production earlier than expected, as well as the inability of Opec to implement a significant reduction in output.