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. Last Updated: 07/27/2016

World Bank Warns Neighbors Of 'Damaging Russian Waves'

Russia's economy is shrinking more than expected, sending "damaging waves" throughout the former Soviet Union, the World Bank said Monday.

Collapsing industrial production, rising unemployment and capital flight will reduce Russia's gross domestic product by 7.5 percent this year and restrain "intraregional trade flows and transfers," the World Bank said in a report posted on its web site.

The bank's last Russian forecast, in March, was for the economy to shrink 4.5 percent. Klaus Rohland, the bank's chief representative in Russia, said in an interview last month that he agreed with the International Monetary Fund's projection for a contraction of 6 percent.

"Remittances to the broader CIS region are expected to decline for the first time in a decade, by 25 percent," the World Bank said.

Russia's economy shrank an annual 9.8 percent in the first quarter, the most in 15 years, as companies struggled to raise funds and falling incomes crimped consumer demand. Industrial production shrank a record annual 17.1 percent in May. Funds sent to the Commonwealth of Independent States amounted to $3.17 billion in the fourth quarter, a decrease of $1.1 billion compared with the previous three-month period, the Central Bank said on its web site on March 11. Remittances to the CIS accounted for 92 percent of the total sent abroad from Russia last year.

"The prolonged credit crunch, untamed recession in the euro area and sharp contraction in Russia will continue to put pressure on current accounts in a number of countries," the World Bank said Monday.

CIS countries have more than $283 billion of short-term debt coming due this year, and only Russia has the funds to pay creditors because of its current-account surplus and foreign currency reserves, the largest after China and Japan, the World Bank said.