By Anna Malpas, AFP
MOSCOW–The World Bank announced a gloomier economic forecast for Russia on Tuesday as the ruble fell despite the central bank saying it had spent billions last week to prop it up. Falling oil prices and sanctions over the crisis in Ukraine have taken a heavy toll on Russia’s economy, and the World Bank on Tuesday predicted it would shrink by 0.7 percent in 2015. It however warned that the contraction would be worse if oil prices were to keep sliding. The bank had previously predicted zero growth for Russia for 2015. Its new forecast was in line with one from Russia’s economic development ministry last week, which predicted a 0.8 percent contraction in 2015. The World Bank said its latest forecast was based on the ��most likely�� scenario of crude prices averaging at US$78 in 2015.
But if oil prices fell to US$70, Russia’s output would shrink by 1.5 percent and households would remain in ��a crisis mode�� for 2015 and 2016, it said. The World Bank said that Russia would avoid recession in 2015 in a best case scenario if oil prices averaged US$85. On Tuesday, oil prices fell to fresh five-year lows, at around US$65, battered by OPEC’s decision last month to maintain its output levels despite a global supply glut. Russia’s economy has slowed in recent years, after GDP growth averaged eight percent during President Vladimir Putin’s first two terms in office from 2000 to 2008. In 2013, growth was just 1.3 percent, attributed by economists to over-reliance on oil and gas revenues. Propping Up Ruble This year, falling growth has been exacerbated by the impact of Western sanctions on Russia over Ukraine and falling oil prices. The ruble has fallen around 40 percent against the dollar and 32 percent against the euro since the beginning of the year, prompting price rises and reduced spending on non-essentials. Russia’s central bank said Tuesday that it had spent US$4.5 billion last week to prop up the ruble, which has plunged over falling oil prices. Putin last week urged the central bank and the government to take ��tough coordinated actions�� to stop speculation on the ruble. Russia still has more than US$400 billion in currency reserves. But that is 20 percent less than in the beginning of the year.