World Bank improves Russia's recession outlook to 1.2% for 2016

World Bank improves Russia's recession outlook to 1.2% for 2016
By bne IntelliNews June 9, 2016

The World Bank improved Russia's recession outlook for 2016 from previous 1.9% GDP decline to 1.2%, in the Global Economic Prospects report published on June 8.

The World Bank revision is in line with growing consensus that Russia's economy will turn the corner from recession to mild growth by the end of 2016, but the low rates of growth expected going forward are little more than stagnation, unless the government can implement deep reforms.

“With activity so far in 2016 contracting more slowly than in 2015, there are tentative indications that the decline in some sectors may be bottoming out,” the report notes.

Industrial production is recovering, despite shrinking investment and restricted access to external financing for Russian firms, the WB believes

The rebound in 2017 was also revised upwards from 1.1% to 1.4% GDP growth, while in 2018 the WB sees Russia's economy advancing by 1.8%.

The Russian economy is struggling to adjust to continued low oil prices, trade embargoes and geopolitical concerns, the World Bank notes echoing its previous "Long journey to recovery" report on Russia.

Tight fiscal and monetary policy is necessary to support this adjustment, but at the same time is weighting on growth recovery.

Interest rates are being maintained at 11%, despite the ongoing recession. However, ruble recovery to mid-2015 levels helped curb inflation from double digits to 7.3% in May, which increases the chances of renewed monetary easing cycle by the central bank.

Similar to recent reports on government's fiscal resources, the WB warns that “even with across-the-board spending cuts, the country’s oil reserve fund is financing government spending at a pace that may deplete its resources”.

On May 19 the International Monetary Fund (IMF) has improved Russia's GDP decline forecast for 2016 from 1.8% to 1.5%.

"We have improved our outlook for Russia, part of which has come due to higher oil prices relative to our last forecast. In addition we have seen inflation declining faster than we had anticipated," IMF Mission Chief for Russia Ernesto Ramirez Rigo said.

Russia's Ministry of Economic Development in April has revised the three-year growth outlook at $40 per barrel oil price in 2017-2019, while expecting the GDP decline in 2016 to be moderate at 0.2%.

According to previous unconfirmed reports, the ministry in January mulled revising the 2016 forecast from 0.7% growth to 0.8% decline, bracing for another year of recession.

The ministry now sees the economy turning the corner in the second half of 2016, posting 0.6% GDP decline in the second quarter, zero growth in the third and 1.3% GDP growth in the fourth quarter.