World Bank Sees Russia’s Economy Contracting in New 2015 Outlook

Russia’s economy is set to shrink next year as a lower oil price takes its toll, the World Bank said in a revised outlook on the country’s growth projections.

The economy will contract 0.7 percent next year with the average oil price at $78 a barrel, the Washington-based lender said in its most likely scenario released in a statement today. It projected a 0.3 percent growth rate for Russia in its baseline scenario in September.

The lower oil price will “negatively affect investment decisions” by companies and consumption may decline for the first time since 2009, said Birgit Hansl, World Bank Lead Economist for the Russian Federation.

Russia’s economy is expected to rebound to 0.3 percent growth in 2016 with the price of oil rising to $80 a barrel, the bank said in its report. Brent crude, which is priced close to Russia’s Urals main export blend, was at $66.63 a barrel, up 45 cents, at 11:11 a.m. in London today.

The world’s largest energy exporter is being battered by a tailspin in oil prices, a 40 percent plunge in the ruble against the dollar this year, and sanctions imposed by the U.S. and its allies over the conflict in Ukraine. Oil and gas contribute about 50 percent of Russia’s budget revenue.

“In the baseline scenario, investment is projected to contract for a third year in a row in 2015, because of continued uncertainty, restricted access to international financial markets by Russian companies and banks, and lower consumer demand,” Hansl said.

In the World Bank’s best-case scenario, with an average oil price of $85 a barrel, the economy may stall next year and expand 0.5 percent in 2016 as the oil price rises to $90 a barrel.

The Russian economy would contract 1.5 percent in the bank’s worst-case projection, which assumes an oil price of $70 a barrel. Growth may rebound to 0.3 percent in 2016 as the oil price rises to $72 a barrel, it said.

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