The World Bank cut Russia's 2010 gross domestic product growth forecast to 4.5 percent from a previous 5 percent to 5.5 percent, citing poor first-quarter data and new global risks, and saying recovery is likely to be bumpy.
The new forecast for 2010 still remains more optimistic than that of Russia's government, which sees the economy expanding 4 percent, and that of the International Monetary Fund, which said Tuesday that GDP is likely to grow 4.25 percent this year.
"After a disappointing first quarter in 2010, a number of leading indicators for April-May show a pickup in economic activity that is likely to be sustained throughout the rest of the year," the bank said in its report.
The economy grew 2.9 percent in the first quarter of the year, following its deepest contraction in 15 years in 2009 of 7.9 percent.
At the same time, the bank upgraded its forecast for Russia's GDP growth in 2011 to 4.8 percent from 3.5 percent in its last quarterly report on Russia in March.
The forecast revision was made in assumption of rising households' disposable income, an increase in consumption, lower unemployment rate and a revival of lending activity in Russia, the World Bank's lead economist for Russia, Zeljko Bogetic, said at a briefing.
The bank said Russia's economy is recovering but not as fast as had been predicted earlier, and further forecast revisions are likely in the near future given "lots of uncertainty" — which was repeatedly emphasized during Wednesday's briefing.
"There is always a possibility of a bad surprise," Bogetic said, adding that prudent fiscal policy and a tighter budget deficit are crucial for the economic recovery in Russia.
Retaining a positive outlook for Russia, the bank's economists warned of external risks, especially from Europe and from Russia's crucial factor — oil prices.
"The possible contagion and the broader debt crisis in Europe could transmit new shocks to Russia through two key channels: oil prices and financial/capital flows," the bank said.
"A likely growth slowdown in the EU and an increase in risk premiums could then lower oil prices and, thus, export and budget revenues, exerting downward pressure on the exchange rate and capital flows."
Given stable oil prices, however, there should not be a large move "in either direction" this year in the ruble's exchange rate, which is currently more flexible than in the past, reflecting market forces and external factors, Bogetic said.
The World Bank also said that given Russia's current trends in inflation and money supply, the downward outlook for inflation in 2010 remains unchanged in the range of 7 percent to 8 percent, slightly higher from the official forecast of 6 percent to 7 percent.
"But risks of higher inflation are related to a possible relaxation in the fiscal stance due to the planned increases in pensions and public wages, and the monetization of the deficit in the future," the bank said.