World Bank slashes Russia's growth outlook

The World Bank cut its growth forecast for Russia on Monday because of recent drought and inflation, in a tough assessment which urged more investment. The bank lowered the outlook for this year by 0.4 percentage points to 3.5 percent of gross domestic product (GDP).  A revision for next year cut the outlook to 3.6 from 4.1 percent. Russia's GDP grew by 4.3 percent in 2011. "This is sobering," the report said, calling the numbers Russia's lowest rate for a decade and a half, excluding the crisis years of 1998 and 2009. To bring growth above four percent, Russia needs to tighten its monetary policy, replenish the reserve fund and diversify the economy, including through privatisation -- traditional recipes suggested to the country by global financial institutions. Four percent is also the figure seen as the threshold by the Russian government. President Vladimir Putin recently called such a rate "slower than before the crisis but more balanced, of higher quality." Despite a surplus budget in the first half of 2012, "budget deficit can end up higher than planned" because it is based on the higher than average oil price, and planned presidential initiatives that could increase spending. Rising inflation is dampening consumer demand and drought is causing a dip in agriculture growth, the report said, expecting a "growth moderation" in the final months of the year. "Capacity utilisation is approaching pre-crisis peak, so growth in future requires higher investment," the report said. Longer-term perspectives suggest little cause for optimism. "An ageing and shrinking workforce and declining oil production could dampen growth over the next decades," the report said. Russia's tight labour market shows "signs of overheating" even when adjusted for seasonality, with August unemployment lowest in two decades at 5.2 percent, and wage growth "outpacing productivity gains." "This trend, if continued, could weaken the competitiveness of Russia's economy," the bank said.