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 In its baseline scenario, the bank expected Russia's gross domestic
product to contract by 3.8 percent in 2015 and a further 0.3 percent
in 2016, describing medium-term growth prospects as dim.
The World Bank's lead economist for Russia, Birgit Hansl, said
"adjustment to the new oil price reality and the sanctions
environment" was a key policy challenge.
"If we look more into the medium term, the main challenge for Russia
is the continued dearth in investment," she said, presenting the
report.
The bank's latest forecasts are more pessimistic than those made in
December, when it expected the economy to shrink by 0.7 percent this
year and grow by 0.3 percent in 2016.
The new baseline forecasts assume that the oil price will recover
only marginally over the next two years, averaging $53 per barrel in
2015 and $57 per barrel in 2016, reflecting ample global supplies
and moderate demand.
Under a more optimistic scenario, with oil averaging $65.5 per
barrel in 2015 and $68.7 per barrel in 2016, the economy would
contract by 2.9 percent this year and grow by only 0.1 percent in
2016, the World Bank said.
Its latest forecasts assume that sanctions imposed against Russia
because of its role in the Ukraine conflict would stay in place in
2015 and 2016.
The sanctions could have damaging long-term consequences that may
last even after the sanctions are lifted, the bank said, citing the
case of South Africa where sanctions imposed in the 1980s caused a
major slump in investment.
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In Russia's case, sanctions were likely to exacerbate an existing
investment shortage.
"Low investment demand hints at the deeper structural problems of
the Russian economy and has already initiated a new era of
potentially small growth," the report said.
The bank also warned that a projected 3.8 percent budget deficit
this year could "severely deplete" the budget's Reserve Fund,
currently equal to around 4.7 percent of GDP.
Hansl said, however: "One could argue that it is prudent to use
fiscal buffers at these times as a counter-cyclical measure."
The Bank also foresaw a $122 billion capital and financial account
deficit this year, reflecting continuing heavy capital outflows,
only partially covered by a $74 billion current account surplus.
(Reporting by Alexander Winning, writing by Jason Bush, editing by
Elizabeth Piper)
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