Russian economy to shrink 7.9%

Moscow - Russia's economy will shrink by 7.9% this year, plunging millions of Russians into poverty and pushing the unemployment rate to 13%, the World Bank said on Wednesday.

The contraction in gross domestic product has been "much larger" than anticipated, and growth is unlikely to pick up even with buoyant oil prices this year, said Zeljko Bogetic, the World Bank's lead economist for Russia.

"The sheer force of the dowturn in the first half is going to determine the economic outcome for this year," Bogetic told journalists after the release of the quarterly report on the Russian economy, which downgraded the bank's earlier forecast for a 4.5% drop in GDP this year.

Bogetic also warned that the social impact could be significant. The World Bank estimates up to 7.5 million Russians could fall below the poverty line this year, putting huge pressure on the government to boost social spending and contain mounting discontent as wage arrears grow and layoffs continue.

Russia is one of the major economies to be hit hardest by the global financial crisis, which drove the prices of its crucial oil and metals exports sharply lower and dried up access to credit. Russia's downturn accelerated last month, with the economy shrinking by an annual rate of 11% in May and 10.2% over the first five months.

The World Bank predicted that the economy would experience "moderate growth" of 2.5% in 2010, but said recovery would be slow and growth rates would return to pre-crisis levels only toward the end of 2012.

It also predicted that unemployment will rise to 13% by the end of the year, from just under 10% now, and the number of poor to swell to 17.4% of the population. According to World Bank calculations, 12.1% of Russia's population of 142 million people lived below the poverty line before the crisis erupted last year.

- AP