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. Last Updated: 07/27/2016

World Bank Upbeat Despite Oil Worry

The economy is becoming less dependent on oil and gas, but not fast enough to meet President Vladimir Putin's goal of doubling gross domestic product by 2010, the World Bank said Wednesday.

While manufacturing output is growing faster than natural resource extraction for the first time since 2000 -- 8 percent versus 6.8 percent -- much of the growth is a "trickle-down effect from the oil industry," Christof Ruhl, the World Bank's chief economist for Russia, said at a presentation of the Washington-based lender's eighth annual Russian Economic Report.

"High crude oil prices have triggered a multiplier leading to an increased production in other industries," the report said, adding that Russia remains too dependent on export commodity prices "to cushion growth against oil price volatility."

Rail car production, for example, is up more than 50 percent this year, mainly because oil companies are exporting more via rail to avoid bottlenecks in the state-run pipeline network.

The fastest-growing manufacturing subsector in the first five months of the year was machine building (up by 14.2 percent), followed by chemicals (10 percent) and construction materials (9.8 percent), according to the bank.

The bank said manufacturers in these and other industries will benefit from Russia further integrating its economy with those of former Soviet states.

Ruhl said that while 8 percent manufacturing growth is solid, there are "hidden sectors" within manufacturing that are shrinking, including military and aircraft production.

"The worst-performing industries are subsidized," he said.

Ruhl dismissed fears that the economy could be overheating, saying that despite a record level of domestic and foreign bond issues and an explosion in consumer lending, volumes remain "very low compared to other countries."

However, ownership concentration remains a problem with just 22 groups controlling at least 30.8 percent of industry and providing 11.3 percent of employment, the bank said.

One thing that is certainly having a negative effect on the economy is the ongoing legal action against Yukos, Ruhl said. "The stability which has been so successfully established is being eroded -- that is the real problem," he said.