World Bank warns of risks for Russia's economy

By Nataliya Vasilyeva

Associated Press

Published: Wednesday, March 26 2014 12:00 a.m. MDT

A street vendor hangs bananas on a rope with prices in rubles and hryvnias in Simferopol, Crimea, Wednesday, March 26, 2014. The World Bank warned Wednesday that Russia's economy could contract this year if the country is hit with more serious sanctions following its annexation of Crimea.

Pavel Golovkin, Associated Press

Enlarge photo»

MOSCOW — The World Bank warned Wednesday that Russia's economy could contract this year if the country is hit with more serious sanctions following its annexation of Crimea.

The organization said in its annual report that it expects the Russian economy to grow 1.1 percent this year if the fall-out from the Crimean crisis is short-lived, but warned of a 1.8 percent fall if Russia is hit with more serious sanctions than those already specified.

So far, the sanctions have been fairly limited and haven't touched on Russia's vital economic interests. The United States and the European Union have imposed travel bans and asset freezes on two dozen Russians who are believed to be close to Putin.

The World Bank said Russia's economic problems are not just to do with the recent events in Ukraine. Last year, Russia grew 1.3 percent, its lowest growth in the past 13 years barring the downturn-hit 2009.

The bank blamed the lack of structural reforms for the downturn. In the past, it said the economy's structural deficiencies were "masked by a growth model based on large investment projects ... fueled by sizeable oil revenues."

The developments in Crimea, it added, "compounded the lingering confidence problem into a confidence crisis and more clearly exposed the economy weakness of this growth model."

Investors have certainly grown jittery of late — recent figures suggest that Russia suffered roughly $70 billion of capital outflow in the first three months of the year, which is more than in all of 2013. Russian monetary officials, however, insisted that they would not be introducing capital controls to stem the flight.

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