The World Bank Forecasts Recession of the Russian Economy in 2014

Today, the World Bank published its report on the Russian economy in which it suggested two scenarios of economic growth in Russia in 2014. The first scenario proceeds from the fact that the effect of the situation around Crimea on the Russian economy will be short-lived and, consequently, slowdown of GDP growth rates to 1.1% in 2014 is expected, while in 2015, slight growth to 1.3% as compared to the previous period.


The second scenario is more pessimistic and suggests that the existing tense political situation will entail more serious far-reaching consequences for Russia and for that reason the World Bank forecasts a 1.8% slump in the Russian economy in 2014 as compared to 2013. In both the scenarios put forward by the World Bank, worsening of the previous World Bank's forecast on Russia and economic recession in the current year are expected. It is to be noted that the official forecast of the Ministry of Economic Development of the Russian Federation as regards GDP growth in 2014 (so far it is 2.5%) appears too optimistic for both the scenarios against the above estimates.


Justifying the published data on the Russian GDP growth in 2014, the World Bank proceeds from the fact that economic growth is primarily affected by a rather unfavorable institutional climate and a lack of investors' confidence. In addition to the above, the situation is made even worse by the Crimean crisis and a threat of introduction by developed countries of sanctions against Russia. So, the pessimistic scenario of the World Bank suggests that a capital outflow from Russia will amount to $150bn. As stated in the World Bank's report, development of Russia in the near future will depend on how soon the conflict around Crimea's joining Russia is resolved.


One cannot but agree with the theses of the report of the World Bank because investments are an important factor which has an effect on economic activities and domestic demand in Russia. According to the preliminary estimates of the Gaidar Institute, in the 1st quarter of 2014 the capital outflow from Russia will amount to $75bn. So, with taking into account the impact of the existing geopolitical situation and the current state of the economy there can be no growth in investment attractiveness and, consequently, GDP in the near future.


Maria Kazakova, PhD (Economics), Deputy Head of the International Department of Budget Stability Research