Oil price revival bolsters outlook for Russian economy
Falling oil prices last year spelled trouble for Russia, which gets half its budget from fossil fuel revenues, writes Andy Tully. But the modest revival in prices over the last few month has made economic forecasts more optimistic.
Boards showing currency exchange rates are seen in Moscow on January 7, 2015.
Maxim Shemetov/Reuters/File
The World Bank says Russia鈥檚 economy may not be headed for as bad a recession as previously forecast, yet it stressed that global economic ambiguities leave the outlook uncertain.
, posted on the bank鈥檚 website on June 1, said Russia鈥檚 economy, hit hard by the drop in energy prices over the past year as well as by Western sanctions, attributing its improved forecast to a modest revival of oil prices, a stronger ruble and 鈥渁 slightly faster retreat of inflation.鈥� ()
As a result, the Bank of Russia, the country鈥檚 central bank, would be able to ease its monetary policy more quickly, further bolstering the economy, according to Birgit Hansl, the World Bank鈥檚 lead economist for Russia.
Hansl鈥檚 report forecasted a contraction of 2.7 percent in gross domestic product (GDP) for 2015, an improvement over the 3.8 percent contraction it said it expected in its The June 1 report also projected GDP growth of 0.7 percent in 2016, compared to the contraction of 0.3 percent expected in the April report.
Despite the World Bank鈥檚 more optimistic view, Hansl鈥檚 statement said the overall outlook is subject to economic factors, some of them outside of Russia鈥檚 control.
鈥淪ignificant downside risks to our projection remain, as the global oil market continues to search for its new equilibrium and the commitment to structural reforms needs to be supported by a concrete set of strong policy actions,鈥� she wrote.
The improved forecast is , which has calculated a 2.8 percent contraction in GDP for 2015. Yet it, too, sees a risk of an accelerated economic downturn for the country. It reports that the country鈥檚 economy contracted by 4.2 percent between April 2014 and April 2015. ()
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Still, the World Bank鈥檚 report is good news for an economically beleaguered Russia. The plunge in oil prices since late June 2014 has starved Moscow鈥檚 budget of revenues needed to run so large a country. And the West has imposed sanctions on Russia for its involvement in Ukraine鈥檚 internal conflict. Both of these factors worked to depress the value of the ruble.
This year, though, the ruble has, like energy, recovered some of its value. In its April 1 report, the World Bank praised both the Bank of Russia and the Kremlin for their handling of the currency crisis, which helped the country avoid a recession through 2014. 鈥淭he government and the central bank moved swiftly; policy responses to both shocks were adequate,鈥� the report said.
In its latest report, the World Bank expects modest economic recovery next year, but it sees investment within Russia to rebound 鈥渕ore prominently鈥� in 2017. But it stresses that this would rely on renewed confidence among consumers and businesses, the government鈥檚 removal of remaining traces of economic structural problems and Western nations phasing out their sanctions by the end of 2016. ()
Another condition for improved economic performance would be the price of oil. The World Bank report says it expects the average annual global price of a barrel of oil to rise to $58 this year and $63.6 next year, compared with an average annual price of $97.6 in 2014.
By Andy Tully Of Oilprice.com
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