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. Last Updated: 07/27/2016

OECD Sees GDP Shrinking 5.6%

APKudrin and President Dmitry Medvedev meeting with finance minister of the CIS countries in Barvikha on Tuesday.
The Organization for Economic Cooperation and Development on Tuesday gave the most pessimistic outlook for the Russian economy to date, saying it would shrink by 5.6 percent, despite new upbeat comments by government officials.

The government expects a full-year contraction of just 2.2 percent, and First Deputy Prime Minister Igor Shuvalov said in March that the economy was near the bottom and that things could improve by the end of the year.

"Output is set to continue falling at least through mid-2009. Negative wealth effects and rising unemployment will weigh on private consumption, while falling demand and financing constraints will hit investment," the OECD said in a report.

The OECD said Russia would be the hardest-hit economy among the BRIC countries, as India and China will still show strong growth of 4.3 percent and 6.3 percent, respectively, and Brazil's economy will contract only 0.3 percent.

In 2010, Russia could return to a small growth of 0.7 percent, but much will depend on the price of oil, it said.

On Monday, the World Bank said the Russian economy would contract by 4.5 percent, twice as fast as the government expects, and that the country must step up spending to save 4 million people from poverty and stave off social unrest.

But Finance Minister Alexei Kudrin contested the grim forecasts Tuesday, saying the economy would return to growth in the fourth quarter.

"According to our forecasts, we will see growth beginning by the end of the year," Kudrin said.

Kudrin has been a relative pessimist in the government, making his comments the strongest indication yet that the Russian leadership sees an end to the downturn. On March 25, he warned his colleagues in the Economic Development Ministry not to get "complacent" with rising oil and stock prices.

The Economic Development Ministry, which oversees the government's official forecasts, expects gross domestic product to fall 7 percent in the first quarter after an 8 percent slump in January and February.

Deputy Economic Development Minister Andrei Klepach said Tuesday that there were some downside risks to the government's GDP view but that he did not expect the contraction to be as sharp as 4.5 percent.

The OECD said oil prices and the global economic situation were key for Russia's prospects.

"Even though policy responses are providing considerable support to the economy, the combination of extremely large adverse external shocks and certain domestic vulnerabilities -- notably fragile confidence in banks and the currency -- make a quick return to strong growth unlikely," it said.

"If global conditions turn out even worse than expected, recovery in Russia could be delayed into 2010 or beyond," it said.

Kudrin also said Tuesday that the government would spend as much as 3 percent of GDP helping the country's banking system weather the global financial crisis.

Members of the Commonwealth of Independent States will spend between 1 percent and 3 percent of their GDP each on supporting banks, Kudrin said during a meeting in Moscow with his CIS counterparts, without being more specific.