Economic cloud hangs over the Kremlin as sanctions and low oil prices persist, though World Bank expects slow growth will return to Russian economy by next year. File photo by Alex Volgin/UPI | License Photo

MOSCOW, April 6 (UPI) -- Russia's economy will continue facing pressure from lower crude oil prices and sanctions, though growth returns by next year, the World Bank said Wednesday.

The World Bank said a recession in Russia is expected to eat away at progress meant to equalize the distribution of wealth in the country, with the poverty rate expected to increase nearly a full percentage point to 14.2 percent this year. If its forecast is accurate, the World Bank said that would erase nearly 10 years of progress.


Andras Horvai, the World Bank's director for Russia, said long-term growth depends on how well the Kremlin can bolster investor confidence with appropriate reforms.

"Administrative barriers to doing business, high transportation and logistics costs, and the perception of an uneven playing field all discourage investment, particularly in the non-resource sectors," he said in a statement.

The Central Bank of Russia in January announced a decision to keep its interest rate at 11 percent, citing potential for further pressure on inflation and currency valuations. Citing oil prices as a risk factor, the bank said negative pressure was sustained by an oversupplied market and slowing in the Chinese economy.

The Russian economy depends heavily on crude oil and natural gas exports, leaving the budget under pressure in the market downturn. Russian President Vladimir Putin has suggested oil priced at $50 per barrel may trigger a recovery in the economy, a price point that's about 22 percent above the current level.

The Central Bank said market conditions are likely to deteriorate further and possibly require it to tighten its monetary policies. Inflation is expected to move from around 10 percent to 7 percent, but risks to the downward trajectory remain.

The World Bank gave credit to Russian fiscal monitors for some progress made in adjusting the economy to the era of lower crude oil prices and Western-backed sanctions.

"The fiscal impact of the adjustment was less severe for Russia than it was for other oil exporters, though a fiscal consolidation plan remains necessary," World Bank economist Birgit Hansl said.

According to the World Bank, the Russian economy shrinks 1.9 percent this year before returning to a growth rate of 1.1 percent in 2017.

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