World Bank raises Russia’s GDP forecast for 2021, but warns of the impact of the sanctions

MOSCOW, Oct 6 (Reuters) – Russia’s economic recovery will be stronger than expected this year, but US sanctions, poor vaccination rates and central bank monetary tightening will weigh on growth prospects, the World Bank said on Wednesday.

Russia’s economic boom will overtake its neighbor Belarus, which is hit by Western sanctions amid a political crisis, but less pronounced than in other former Soviet republics such as Armenia, Georgia and Uzbekistan.

After shrinking 3% in 2020, its sharpest decline in 11 years, the Russian economy has recovered to pre-pandemic levels but will lose momentum over the next few years without additional investment that could come from government spending.

The World Bank now expects Russia’s gross domestic product to grow 4.3% in 2021 and 2.8% in 2022, compared to 3.2% and 3.2%, respectively, it forecast in June.

This year, the economy will be “aided by an earlier recovery in domestic demand and increased energy prices,” the World Bank said in a report on Europe and Central Asia.

In 2022, economic growth will slow as demand stabilizes and prices for industrial raw materials can fall, it said.

“The escalation of geopolitical tensions, including additional US sanctions in 2021, lower vaccination rates and hikes in key interest rates from record lows, are weighing on growth prospects.”

Russia has had to hike rates five times so far this year, is struggling to contain persistently high consumer inflation, and is well on its way to hike the key rate from 6.75% by at least 25 basis points on October 22.

CENTRAL ASIA, CIS countries

The forecast economic growth of Russia this year is below the 4.3% that the World Bank expects in Central Asia for 2021 and 2022, thanks to investment activity and despite inflation-related interest rate hikes.

The region’s largest economy, Kazakhstan, will grow 3.5% this year and 3.7% next year.

“The medium to longer term prospects in Central Asia could be dampened by stability concerns in neighboring countries, including Afghanistan, amid heightened security risks and uncertainty about the influx of migrant refugees,” the World Bank said.

Among the other CIS countries, Georgia recorded the strongest growth this year with 8.0%, followed by Moldova with 6.8% and Armenia with 6.1%.

The continuation of the COVID-19 pandemic amid low vaccination rates and high vaccination reluctance in some countries carries downside risks to forecasts, the global panel said.

The World Bank has made the following updated forecasts:

World Bank economic forecasts

Reporting by Andrey Ostroukh; Adaptation by Giles Elgood

Our Standards: The Thomson Reuters Trust Principles.

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