The World Bank Tuesday said the Russian economy would contract 8.7% in 2009, worse than previously forecast, but predicted a modest recovery to growth of 3.2% in 2010.
"Based on the most recent statistics we forecast a gross domestic product contraction of 8.7% in 2009, despite higher oil prices, followed by a growth of 3.2% in 2010," the World Bank said in its latest economic report on Russia.
Previously, it had forecast a contraction of 7.9% in 2009.
The forecast is slightly more pessimistic than official predictions with President Dmitry Medvedev forecasting that GDP would shrink 7.5% this year.
The bank said the outlook was uncertain because a large part of Russia's non-exporting sectors, which are not dependent on foreign markets, continued "to suffer from depressed consumer demand and limited credit availability."
The World Bank said it has revised up its forecasts for crude oil prices in 2009 and 2010, a major plus for Russia which currently outranks Saudi Arabia as the world's top oil producer.
"The downside risks associated with high volatility of oil prices and global demand will, however, remain," it added.
The expected modest recovery during the second half of 2009 is unlikely to have significant impact on unemployment and real incomes while it might take three years for the poverty rate to decline to pre-crisis levels, it said.
The poverty rate could reach 17.7% at the end of 2009 while in the medium-term the poverty rate is expected to decline to 16.1% by end-2010 and 14.6% by end-2011, it said.
But the World Bank warned that Russia's real GDP will likely return to pre-crisis levels only in late 2012.
It said Russia's pre-crisis decade of prosperity--which saw growth of 7.7% in 2006 and 8.1% in 2007--was built on high oil prices, surging capital inflows and access to low-cost financing, coupled with strong economic management.
But in the post-crisis world, Russia needs to implement fiscal adjustment and diversify its economy in the context of sluggish global growth, low capital flows, and more limited access to foreign financing, the World Bank said.
Economists say Russia has been helped by the recovery in oil prices from last year's lows but warn too little has been done to diversify the economy and say the country remains vulnerable to fluctuations in the price of crude.