Russia to Drive Regional Recovery

rebound in Russia's economy will be among the main drivers of economic recovery in Europe and Central Asia this year, the World Bank said Thursday.

The region will see a 4.1 percent recovery in its real GDP, with Russia and Turkey accounting for 62 percent of that, the bank said in a report.

The World Bank expects Russia's economy to grow by 4.5 percent this year, more than the forecast of 4 percent announced by the Economic Development Ministry earlier this year. The bank's forecasts for 2011 and 2012 are 4.8 percent and 4.7 percent, respectively.

The Russian economy, which saw year-on-year growth of 2.9 percent in the first quarter, is likely to perform well over the first half of 2010, the report said.

But that growth may taper off by the end of the year.

"The recovery in Russia, initially export-led and fed by bounce-back factors, is expected to continue through the first half of 2010 but should lose some momentum toward the end of the year as these factors fade," the report said.

Unlike a number of small economies, including Ukraine, Belarus, Armenia, Bulgaria, Latvia and Lithuania, industrial production in Russia has bounced back and returned to the pre-crisis level driving the economic recovery in the region, the report said.

Industrial output in Russia rose 5.8 percent year on year in the first quarter, the State Statistics Service reported in April, after the indicator fell 10.8 percent in 2009.

But despite the positive indicators, weak consumer demand and investment levels, brought on by high unemployment and spare capacity, are lagging the broader economic recovery, the report said.

At the same time, the bank is expecting rising wages, oil revenues and "a reduced drag from the financial sector to support an increasing prominent role for domestic demand in the recovery."

"These forces, however, will be partially offset by the appreciation of the currency, which would curb export competitiveness," the report said.

Russia's oil-driven economy, whose contraction during the financial crisis and subsequent rebound was among the world's most volatile, has an outsized effect on some of the smaller, regional economies, which are largely dependent on remittances from the country, the World Bank said.

Workers' remittances from Russia to other members of the Commonwealth of Independent States declined by 26 percent and reached $5.3 billion in 2009, according to the Central Bank.

With Russia's GDP increasing over the coming two years, the economy in Europe and Central Asia is likely to grow by 4.2 percent and 4.5 percent in 2011 and 2012, respectively, the report said.

The growth for CIS countries in particular over the period will remain relatively stable at 4.5 percent