Russia needs to implement structural reforms as its economy is losing
momentum and is underperforming its emerging-market peers, the World
Bank said Tuesday.
Russia's economic growth has already dropped to half the level
seen in the decade up to the 2008 global financial crisis, while
industrial output declined this year for the first time since 2009.
Given the lack of investment in the economy, such a trend is expected to
continue over the medium term, the World Bank said in its Russian
Economic Report, published twice a year.
"The weak external environment, high inflation, flat oil
prices and sluggish domestic demand are set to postpone a pickup in
growth towards the second half of 2013," the World Bank said.
"By 2014, growth in Russia is set to be lower again than in Brazil, South Korea and Turkey," it said.
The World Bank expects the Russian economy to slow further to
3.3% in 2013 from 3.4% in 2012, remaining far below an ambitious target
of an annual 5% set by President Vladimir Putin. The economy ministry
expects Russia's economy to expand by 3.6% this year.
In the absence of large investments and new discoveries,
Russia's commodities-dependant economy will struggle to expand as
further increases in oil prices are unlikely, capacity utilization is
approaching pre-crisis peaks and unemployment remains at a record low,
the World Bank said.
"Today's moderate growth reflects Russia's moderate potential
growth rate, as indicated by low unemployment and high capacity
utilization, along with a weak external environment," it said.
The World Bank said falling oil prices--which it forecast at
$102 a barrel in 2013 and 2014, down from $105 in 2012--would further
slow the Russian economy. Around 50% of federal government revenue comes
from oil.
"We see a slight downgrade for the oil price, which will weigh
on Russia," Kaspar Richter, the World Bank's chief Russia economist,
said at a press conference Tuesday.
To revive and modernize its economy, Russia has to manage
macroeconomic policies to ensure economic stability, sticking to prudent
spending plans, focusing on low inflation and strengthening banking
supervision, particularly in consumer lending, the World Bank said in
its report.
To lift its growth potential, Russia needs to reduce "the
state's footprint on the economy" and improve the investment climate,
while strengthening governance through more transparency, better
regulations and more effective control of corruption, the bank said.