Russia will be the driver for Europe’s economic recovery says World Bank

Russia will play a key role in Europe’s recovery as one of the few engines of growth on the continent in the near term, according to a June 10 World Bank report.

Russia along with Turkey will make up just under two-thirds of all growth in the region this year. The economy of the Europe as a whole is expected to grow by 4.1 percent, but Russia’s growth is already accelerating as it emerges from the other side of the crisis. Russia’s economy is expected to grow by 5.3 percent in the second quarter of 2010, according to Russian investment bank Renaissance Capital. The official forecast for this year is a more modest 4 percent of growth, but that is based on the budget assumption of an average oil price of $58, well below the current levels.

Turkey is also powering ahead. In a recent report, the OECD predicted that Turkey would turn in growth of 6.8 percent this year. Both countries have managed to weather the financial storm well: Russia thanks to its extremely large hard currency reserves, and Turkey thanks to the fact its banking sector has been extremely prudent since the last big financial there in 2000.

“Turkey though still stands out as offering reasonably good news more or less across the board,” said Timothy Ash, head of research at Royal Bank of Scotland in a recent report.

The World Bank expects Russia’s economy to grow by 4.5 percent this year, and 4.8 percent and 4.7 percent in 2011 and 2012 respectively.

However, Russia’s continued recovery is by no means a certainty. Renaissance Capital warns that further out, Russia’s recovery is very dependent on oil prices remaining at the current level of about $74 and the state’s ability to deliver on all the reforms it is currently attempting to put in place. If either oil prices fall or the Kremlin fails to make the reforms stick the bank predicts that growth will collapse again in 2013. The World Bank also warned that the growth could run out of steam.

“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, according to The Moscow Times.

Still, unlike its neighbors, Russia has already bounced back and largely returned to pre-crisis levels, driving the economic recovery in the region. The World 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,” forces that will be off-set by a return to the appreciation of the ruble, which has already gained 9 percent in value since the start of the year, the Central Bank of Russia said this week.

Still, the EU is well aware of Russia’s potential to spur growth in their own markets and vowed to hit “the fast forward” button in improving relations with Russia.

EU President Herman Van Rompuy said at the end of the 25th Russia-EU summit, held in Rostov-on-Don at the start of June: “With Russia, we don’t need a reset. We want a fast-forward,” he said, referring to the “reset” of relations between Moscow and Washington last year.

With The Moscow Times

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