MOSCOW (Reuters) – The World Bank has lifted its forecasts for 2021 economic growth in Russia, noting signs of improvement in the labour market, but said planned fiscal consolidation may hamper the expansion, the global body said on Wednesday.
After shrinking by 3% in 2020 under pressure from the COVID-19 pandemic and a drop in oil prices, the Russian economy is on track to rebound this year amid a global roll-out of vaccines and recovering demand.
In a new report, the World Bank said it now expects Russia’s gross domestic product to grow by 3.2% in 2021 and at the same pace in 2022 versus 2.9% and 3.2%, respectively, that it forecast in March.
“This is the baseline scenario of gradual decline in new COVID-19 infections,” the World Bank said in a report.
The World Bank said Russia has space for a more gradual fiscal consolidation than planned, warning of pronounced output losses from a decline in government spending.
Even though Russia’s economic contraction in 2020 was the deepest in 11 years, Russia performed better than the world economy that shrank by 3.8%.
The recent U.S. sanctions on Russian sovereign debt do not threaten Russia’s financial stability thanks to strong macro-fiscal buffers and relatively moderate share of foreign investor holdings of Russian government debt, which could be compensated through domestic investors, the World Bank said.
The United States barred U.S. banks from buying rouble-denominated sovereign bonds directly from Russia from mid-June, in addition to an existing ban on buying sovereign Eurobonds directly from the finance ministry.
The Russian banking sector has been resilient so far, and the labour market began showing some signs of improvement by the end of 2020 but has not recovered to pre-pandemic levels, the World Bank said.
Russia managed to contain additional spikes in the poverty rate in 2020 but disposable incomes declined and standards of living have worsened, the World Bank said.
Declining real disposable incomes is a sensitive issue for Russia ahead of the parliamentary election due in September.
Reporting by Andrey Ostroukh; Editing by Toby Chopra
