World Bank Forecasts Recession in Russia After Sanctions and Oil Prices

Russia faces a protracted recession as the impact of Western sanctions lingers and oil prices stay low, the World Bank said in a report published on Wednesday.

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.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza