World Bank Revises Its Growth Projections for Russia for 2015 and 2016

Moscow, December 9, 2014 – The World Bank has updated its economic outlook for Russia for 2015 and 2016 to reflect a further decline and increased volatility in global oil prices.  The revised outlook is articulated through three scenarios – a baseline, an upper, and a lower- case – based on different oil price assumptions.

The new baseline, or most likely scenario, assumes an average oil price of US$78 per barrel for 2015 and of US$80 per barrel for 2016. On this basis, real GDP is projected to contract by 0.7 percent in 2015, before increasing by 0.3 percent in 2016.

“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,” said Birgit Hansl, World Bank Lead Economist for the Russian Federation.  “For companies in the natural resource sector, lower oil and commodity prices are expected to negatively affect investment decisions. For the first time since 2009, consumption is expected to decline, following a negligible expansion in 2014.”

During 2016, investment activity is projected to remain below its 2014 level, constrained by lingering structural problems and persistent negative business sentiments resulting from geopolitical tension and economic policy uncertainty. 

The lower-case scenario assumes an average oil price of US$70 per barrel in 2015 and US$72 per barrel in 2016. In this scenario, the Russian economy is projected to contract by 1.5 percent in 2015, before expanding mildly by 0.3 percent in 2016. Investment would contract by more than under the baseline scenario.

“The key driver of the additional contraction in the lower-case scenario is a more pronounced decline in consumption in both 2015 and 2016. A shrinking economy and declining real wages could, result in a vicious circle for consumption,” said Birgit Hansl.

The uppercase scenario assumes an average oil price of US$85 per barrel for 2015 and US$90 per barrel for 2016. At these prices, the Russian economy is expected to avoid a recession in 2015 and to achieve an expansion of 0.5 percent in 2016. As in the other two scenarios, net exports are expected to be the main contributor to growth, replacing consumption growth, which is likely to come to a standstill. Investment is still expected to decline, though by less than in the other two scenarios, due to restricted access to external capital and high borrowing costs. In 2016, investment and consumption growth would start their gradual recovery and begin to contribute positively to growth.