19 Feb 2010 16:08

World Bank: Russian GDP might grow 6%-8% a year given economic modernization

MOSCOW. Feb 19 (Interfax) - The World Bank believes Russian GDP might grow 6%-8% a year given economic diversification and modernization, Bank Vice President for Europe and Central Asia Philippe Le Houerou told journalists.

If Russia returns to the economic model that existed prior to the crisis, growth might be 3%-4% a year, he said. However, given a strategy of diversification and modernization, which would require rising labor productivity, the growth rate could easily double, he said, adding that his figures were very preliminary estimates.

The World Bank figures Russia's situation will improve along the lines of Europe and Central Asia in general, where growth rates will increase, but slowly, Le Houerou said. It will not be immediate, given the effects of the crisis, he said.

Russia is growing steadily healthier economically, and production indicators are gradually improving, he said. Economic growth in Russia in 2010-2011 will be an annual 3%-4%, the bank predicts, and more toward the high end of the 1%-4% growth projected for the region as a whole, he said.

Le Houerou said the World Bank supports Russia's development strategy, and noted its emphasis on economic diversification. He also said such a strategy was appropriate for the region's countries more generally.

European and Central Asian countries were more affected by the global crisis, because the region had shown itself more integrated and with the highest rates of economic growth, he said.

A significant part of the high economic growth rates was supported with large foreign loans, which was especially fair for Central and Eastern European countries, Le Houerou said. When the financial crisis hit, many banks stopped lending and this fairly quickly led to serious financial shortages that quickly translated into significant GDP contraction.

In Central Asia, the crisis acted on the economic crisis differently, he said. In Tajikistan, 50% of GDP depends on money transfers from working immigrants in Russia. So problems in Russia that arose when prices starting falling for raw materials were quickly felt in Tajikistan.

Another significant way in which crisis effects were funneled elsewhere was export-import channels, Le Houerou said. Some countries, Russia among them, were directly hit by falling raw materials prices, while others that were strongly tied to Russia suffered both directly and indirectly. All these processes developed quite rapidly, he said.

G20 country cooperation proved very important in the struggle with the world crisis. Cooperation among central banks and finance ministries in those countries helped fend off much deeper and more serious consequences. Time will tell, Le Houerou said, to what degree the current crisis has been lessened, but cooperation was a decisive factor in saving the world from catastrophe.

Problems do remain, however, significant among them large government debts, he said. Very complex issues need to be resolved in macroeconomic management and very close attention is needed to determine the effectiveness and results of government spending, he said.

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