World Bank improves Russia economic outlook, sees 1.5 percent GDP growth in 2017

A worker checks the valve of an oil pipe at an oil field owned by Russian state-owned oil producer Bashneft near the village of Nikolo-Berezovka, northwest of Ufa, Bashkortostan, January 28, 2015. REUTERS/Sergei Karpukhin/File Photo

MOSCOW (Reuters) - Russia’s economic outlook has improved and the commodity-dependent economy is set to return to growth as soon as next year, the World Bank said on Wednesday.

Russian gross domestic product will contract by 0.6 percent this year, the international lender said, performing better than its April prediction for a 1.9 percent contraction.

As oil prices are projected to recover to an average of $55 per barrel in 2017, the Russian economy is expected to bottom out in the second half of this year. The World Bank sees it growing by 1.5 percent in 2017 and 1.7 percent 2018.

The bank’s revised outlook for 2017 is more optimistic than its prediction made in April, of 1.1 percent growth, and also better than the Russian central bank’s forecast for growth of less than 1 percent next year.

“This growth upsurge, however, is unlikely to turn the tide in terms of building a more diversified economy,” the World Bank said in a regular report.

It said higher oil prices would have a positive impact on Russia’s domestic demand, in turn spurring investment activity as major companies replenish their stocks. Lower inflation together with some recovery in private incomes would help the poverty rate decline.

Adding a note of caution, the World Bank said Western economic sanctions over the Ukraine conflict and tough conditions for Moscow’s main trading partners could complicate Russia’s economic recovery.

Another potential problem lies in Russia’s depleting fiscal reserves. These are expected to decrease from 7 percent of GDP at the end of 2016 to 3.1 percent of GDP at the end of 2019, which will increase fiscal sustainability risks, according to the World Bank.

“The vulnerability of the economy to external shocks requires the authorities to focus more on deepening structural reforms,” the bank said in its report, reiterating its call for greater diversification of the Russian economy.

Reporting by Andrey Ostroukh; Editing by Alexander Winning