Russian economy turns around but ‘very slowly’: World Bank

MOSCOW (Reuters) -- The Russian economy had bottomed out in the second quarter of 2009 and is turning around albeit “very slowly”, the World Bank said in its economic report, raising slightly its 2010 growth outlook for Russia.

The World Bank said the downside risks to the economic growth were linked to weak domestic demand and structural constraints, adding that post-crisis environment provided an opportunity for reforms.

The World Bank said it expects the central bank to continue cutting interest rates to ease lending to enterprises but saw a limited impact from such policy since the cost of lending remains high despite previous cuts.

The World Bank said the central bank, which is fighting to stem off appreciation of the ruble, may also soon face a “trade-off between maintaining a competitive exchange rate for tradable industries and avoiding inflationary pressures”.

However, the World Bank noted that a competitive exchange rate was a key condition for a “transition from the current model of heavy dependence of natural resources to a more sustainable growth model”.

The World Bank said it sees a return of capital inflows to Russia in the first quarter of 2010 due to higher oil prices and improved global outlook.

The World Bank said it saw inflation rate at between 9 and 10 percent in 2010, down from the previous estimate of 11-13 percent, but warned that inflationary impact of stimulus policies may emerge towards the end of the second quarter of 2010.

The World Bank said it saw no major improvements in the Russian labor market this year but said unemployment rates may increase somewhat due to seasonal factors.

The Russian government has a limited scope for raising the budget revenues and should instead focus on improving efficiency of budget spending. It said without the reforms the Russian growth will remain sluggish.

“Without a more productive, diversified, and competitive economic base, its long-term growth is likely to be slower than in the past decade and than the pre-crisis expectation,” the World Bank said.

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