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World Bank Keeps 2015 Growth Projections for Russia, and Slightly Revises 2016-2017 Outlook

December 18, 2015

World Bank Group

Moscow, December 18, 2015 – The World Bank has updated its economic outlook for Russia for 2015-2017 to reflect a recent downward adjustment in oil prices. The new most likely scenario assumes an average oil price of US$51.9 per barrel for 2015 and of US$49.4 per barrel for 2016 from previously projected US$53.0 per barrel in 2015 and 2016.  

The assumed lower oil prices are expected to have no impact on growth in the last quarter of 2015. On this basis, the World Bank keeps its 2015 projections of a 3.8 percent real GDP contraction by this year. Growth for 2016 was revised slightly down to -0.7 percent (from -0.6 percent).

“The revised forecast is largely driven by the recent downward adjustment in oil prices that is expected to keep pressure on the ruble exchange rate, somewhat delaying the retreat of inflation in 2016,” said Birgit Hansl, World Bank Lead Economist for the Russian Federation. “Elevated inflation risk could further delay the Central Bank of Russia from resuming its monetary easing cycle. Higher borrowing costs than anticipated in the previous forecast could then limit credits to firms and households.”

Higher borrowing costs and inflation would keep downward pressure on domestic demand, delaying the economic recovery until the second half of 2016. Consumption is projected to decline in 2015 and 2016, before it growing moderately in 2017. As sanctions are in place, low oil prices, restricted access to capital, and policy uncertainty are likely to continue restraining investment activity, which is expected to only recover notably in 2017.

There remain significant downside risks to the projection, as the global oil market remains impacted by high stocks in OECD economies, ample global supplies and expectations of slower demand. There are also high risks related to financial sector stability and fiscal sustainability.

Growth in 2017 was revised from 1.5 percent to 1.3 percent, while oil prices are expected at US$52.7 per barrel, compared to US$55.0 per barrel previously.

“Weakening potential growth in Russia is partly due to lower productivity growth. This is underlining the importance of strong commitment to structural reforms to support long-term growth while such reforms could in the short-term lift investor and consumer confidence,” said Birgit Hansl.  “Structural reforms are not only associated with higher growth, they become essential for addressing demographic shifts and to prevent the reversal of achievements in shared prosperity.