The World Bank said on Monday that the Russian economy would contract in 2009 as the worst global recession since the World War II took its toll on the country and the number of poor people will increase due to rising unemployment.

The global lender expects Russia's gross domestic product, or GDP, to fall 4.5% in 2009, from 3% growth the Bank had forecast in November 2008 and severe than a 2.2% contraction the Russian government predicts.

With a much worse global financial outlook and oil prices in the USD 45 a barrel range, Russia's economy is likely to contract by 4.5% in 2009, with further downside risks, the World Bank said in its latest Russian Economic Report.

The Bank's previous forecast was based on growth of the world economy and oil prices around USD 75 a barrel. The fall in oil prices in the wake of global economic crisis has hit the Russian economy as it depends heavily on revenue from oil exports.

As the crisis continues to spread to the real economy around the world, initial expectations that Russia and other countries will recover fast are no longer likely, the report added.

The deeper and more prolonged economic crisis is likely to have a major social impact, which is already spreading fast. The World Bank estimates that aggregate unemployment in Russia will increase by 2.7 million people in 2009, accounting for more than 12% of the workforce. Meanwhile, the number of poor people will likely increase 2.75 million, wiping out part of the gains in reducing poverty in recent years.

The World Bank noted that so far, policy measures are aimed at supporting the financial sector and enterprises. The Bank suggested that future policy response would have to be more selective, cushioning the impact on the vulnerable, addressing the most critical infrastructure bottlenecks, and supporting small and medium size enterprises.

Inflation is forecast to be around 11% to 13% in 2009 as a result of rising import prices and considerable relaxation in fiscal stance.

Further, the Bank said tighter credit, collapsing global demand, huge global uncertainty, and rising unemployment have hurt both investment and consumption growth in Russia.

As credit continues to tighten and demand continues to fall, manufacturing is likely to contract further this year, the Bank said. Recent statistics showed that manufacturing output dropped by an annual 18.3% in February after falling 24.1% in January.

Moreover, the Bank said the fiscal position of the country has worsened considerably, limiting the government's options for further fiscal stimulus. The Bank sees a fiscal deficit of about 7.4% of GDP, a massive reversal of the fiscal position from the 4.1% surplus in 2008.

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