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Consumer demand to drive Russian GDP growth in 2018: World Bank

[MOSCOW] Russia's economy is seen growing faster than previously thought in the next three years because of improving consumer demand but still faces risks from lower oil prices and further expansion of Western sanctions, the World Bank said on Tuesday.

The international lender said it now expected Russian gross domestic product (GDP) to grow by 1.7 per cent in 2017, up from a forecast of 1.3 per cent in May, following two years of economic contraction.

Economic growth will continue over the next two years, with GDP seen increasing by 1.7 per cent in 2018 and 1.8 per cent in 2019, because of higher exports and stronger domestic demand, the World Bank said.

Spending by local and foreign consumers will also increase during the 2018 World Cup, it added, supporting businesses in the 11 Russian cities hosting the tournament.

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"In an environment of relatively high oil prices, macro stabilisation, and improved business and consumer confidence, we expect Russia's economy to continue to grow," the World Bank said in a semi-annual report.

"Consumer demand is expected to be the main engine of GDP growth in 2017-2019. With headline inflation stabilizing around 4 per cent in 2018-2019, real wages are expected to be on an upward growth trajectory."

The World Bank said Russia's economy still faced risks from a drop in the price of oil, its main export, and crude prices would average US$56 a barrel in 2018, down from a current price of around US$63 a barrel.

Further external risks come from a possible expansion of Western sanctions over Moscow's actions in Ukraine and alleged interference in the 2016 US presidential election, while internally the country has to contend with a vulnerable banking sector, it said.

Russia's banking sector has been under intense scrutiny since the central bank stepped in earlier this year to bail out two of the country's biggest lenders in the space of a month.

But the World Bank added: "It should be emphasized the banking sector risk is not deemed systemic, given the recent failures of some large banks, preserving its stability and maintaining public confidence will be a key challenge."