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Business

Economy to contract 4.5% in 2009

Latest update : 2009-03-30

The Russian economy will shrink 4.5 percent in 2009 from the year earlier due to the decline in global demand, the fall in commodity prices, and the tightening of credit available to companies, the World Bank said on Monday.

AFP - Russia's economy will contract 4.5 percent in 2009 from the year earlier due to a worsening global financial outlook and low oil prices, the World Bank said on Monday.
  
"With a much worse global financial outlook and oil prices in the 45 dollars a barrel range, Russia's economy is likely to contract by 4.5 percent in 2009, with further downside risks," the Bank said in its latest economic report on Russia.
  
The World Bank blamed the acceleration of the slowdown in Russia in 2009 on the decline in global demand, the fall in commodity prices and the tightening of credit available to companies.
  
The forecast is considerably more pessimistic than that of the Russian government, which is predicting a contraction of 2.2 percent in GDP in 2009.
  
Russia's economy has suffered heavily in the global economic crisis due to its dependence on oil and gas revenues, which make up by far its biggest foreign exports.
  
Its export-dependent heavy manufacturing industries have also been hit hard by the decline in global demand and slump in commodity prices.
  
"As the crisis continues to spread to the real economy around the world, initial expectations that Russia and other countries will recover fast are no longer likely," the World Bank said.
  
It called on Moscow to move forward from the crisis by improving its economic diversification and sharpening competitiveness.
  
Necessary measures that could be taken during the crisis include "dealing with the worst infrastructure bottlenecks, strengthening public administration and fighting corruption."
  
Russia also needs to improve the investment climate and encourage competition and small and medium size enterprises "to engender long-term productivity gains."
  
It said the number of unemployed is expected to increase further and will likely surpass 12 percent by the year-end.
  
The World Bank said investment and consumption in Russia had been hurt by tighter credit, slumping global demand and the rise in domestic unemployment.
  
It described as "worrisome" an investment decline of 2.3 percent in the fourth quarter of 2008, reflecting escalating liquidity problems in the banking sector and a slowdown in consumption growth due to rising unemployment.
  
"As credit continues to tighten and demand to fall, manufacturing is likely to contract further this year."
  
The World Bank said Russia's fiscal position has worsened considerably, limiting its options for further fiscal stimulus although large fiscal reserves will make it possible for the government to finance its deficit.
  
It predicted a deficit of 7.4 percent of GDP in 2009, describing this as "a massive reversal of the fiscal position from the 4.1 percent surplus in 2008."
  
The government now faces the challenge of limiting the adverse social consequences of the crisis, amid increasing unemployment and poverty within an increasingly tight budget, it said.
  
The Bank also warned of new pressures in the Russian banking sector and said the share of nonperforming loans in the total banking sector loan portfolio could exceed 10 percent by the end of 2009.

Date created : 2009-03-30

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