World Bank cuts Russia forecast

The World Bank on Wednesday downgraded its outlook for Russia's economy, warning that a biting recession was deepening and would persist into next year, pushing more people below the poverty line.

Weighed down by Western sanctions and a plunge in oil prices, Russia's economy slipped into recession at the start of this year.

The World Bank predicted the Russian economy would shrink by 3.8 percent in 2015 in its baseline scenario, a far steeper drop than its earlier forecast of a 2.7-percent contraction.

"This will accelerate an already troubling rise in the poverty rate," said the bank's country director for Russia, Andras Horvai.

The downturn in 2015 could be as much as 4.3 percent if oil prices continue to drop and average around $50 dollars a barrel for the year, he said.

The bank ditched its earlier forecast of a gentle recovery with 0.7-percent growth in 2016. It now expects Russian economic output to decline 0.6 percent next year, with a recovery only appearing in 2017 with growth of 1.5 percent.

"The recession is having a severe impact on households as double-digit inflation erodes real wages and incomes," the World Bank said, citing "sharply increasing" poverty rates.

"The current recession is expected to reverse recent progress in poverty reduction and threatens shared prosperity achievements of the last decade," the World Bank said, referring to trends regularly hailed by Russia as major achievements of President Vladimir Putin.

Russia experienced a "dramatic contraction in real wages and income" in the first half of 2015, according to the report.

The poverty rate has climbed to 15.1 percent, representing 21.7 million people, in what the World Bank called a "troubling rise" exacerbated by increasing food prices.

In some regions, more than 35 percent of the population live in poverty, it said.

The World Bank forecasts assume that Western sanctions remain in place.

Russia's central bank this month predicted an even greater economic contraction in 2015 of between 3.9 percent and 4.4 percent.

- 'Continuing support for Putin' -

Putin promised after his election in 2012 to boost the salaries of teachers and doctors but the World Bank said the recession has hit those working for the public sector "especially hard, with their earnings declining by 10 percent."

Russian news website RBK last week cited trade unions and independent monitors as saying the government was seeking ways to mask the wage decline on paper while forcing state employees to work longer hours in order to meet its targets.

At the same time, Russia's trade ministry has developed a plan to launch special debit cards for the poor -- similar to food stamps -- that can only be used to purchase certain basic foods.

Lev Gudkov, who heads the Levada Centre polling company, told AFP that for poorer Russians in economically depressed regions, the "price growth of consumer goods" is becoming the number one worry.

Twelve percent of Russians now say they can no longer afford to buy enough food.

At the same time Gudkov noted "continuing support for Putin's policies."

"Resources are shrinking but so far this has not caused any serious protest," he said.

"There is a great reserve of patience."

Consumer prices in August were up 15.8 percent year on year, the state statistics service said this month.

The government is struggling to keep the Russian currency afloat but the current interest rate of 11 percent is seen as too high to kick-start the economy.

As oil prices plunged this summer, the ruble fell 20 percent against the dollar, reaching its lowest level this year in August and pushing up consumer prices.