World Bank looks at Russia economic downturn scenarios | Business| Economy and finance news from a German perspective | DW | 26.03.2014
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World Bank looks at Russia economic downturn scenarios

In a first estimate by a leading international institution, the World Bank has gauged the potential economic damage the Kremlin's standoff with the West may cause to Russia. But not all problems are linked to Crimea.

In its fresh Russian Economic Report released Wednesday, the World Bank painted a dismal picture of economic developments in the country which looked set to remain embroiled in a standoff with the West over Ukraine and Crimea in particular for a long time.

Highlighting Moscow's dependence on revenues from raw material exports to the West, the World Bank said further sanctions were bound to have a major impact on Russia's growth prospects.

"The low-risk scenario projects 1.1 percent growth for 2014 and 1.3 percent for next year, but our high-risk scenario assumes a more severe shock to investment activities, if the geopolitical situation worsens," World Bank Lead Economist Birgit Hansl said in a statement. "That would result in a contraction of 1.8 percent in 2014 and 2.1 percent in 2015."

Vicious circle

The World Bank warned that Russia could see record capital outflow of $150 billion (108.8 billion euros) this year alone. The Economy Ministry estimated net capital flight already amounted to $70 billion in the first quarter of this year, compared with $63 billion in the whole of 2013.

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Russian economy under pressure

The report said the lack of structural reforms in the country had in the past been masked by a growth model based on large investment schemes all fueled by sizeable oil revenues. But the Crimea conflict now clearly exposed the strategic downsides of that growth model.

The World Bank concluded that a structural overhaul of its economy could save Russia a lot of trouble in the future, but added a quick fix looked highly unlikely.

"There's a risk that the Russian government will be put back into crisis mode [over the Crimea conflict], and it's likely that policy choices will be about managing short-term issues while the medium-term agenda of structural reforms will continue to take a back seat," the report warned.

hg/dr (Reuters, AP)

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