By Andrey Ostroukh 

MOSCOW--Russia's economic contraction will be worse than previously thought, the World Bank said Wednesday, the day the government reported to President Vladimir Putin that the struggling economy will recover soon.

Under its new baseline scenario, the World Bank forecasts the Russian economy will contract by 3.8% in 2015--based on an average oil price of $53 a barrel--compared with its earlier forecast of a 0.7% contraction made in December.

The new forecast reflects the assumption that the impact of Western sanctions, which were imposed gradually throughout the previous year in response to Moscow's annexation of Crimea and its support of rebels in eastern Ukraine, will linger for a long time.

Apart from the sanctions, the impact of a recent rapid drop in prices for oil, Russia's key export, will be more profound this year and in 2016, the World Bank said in a report titled "The Dawn of a New Economic Era?"

"The main point of this year's forecast is that shocks of the last year, especially the oil prices shock of the last quarter of 2014, are really impacting the economy. So there is not much you can do anymore for this year," said Birgit Hansl, the World's Bank Lead Economist for Russia, who presented the new forecast.

Russia's government admits that the economy will contract for the first time since 2009 but prefers to stick to a more optimistic view. After shrinking by 3% in 2015, Russia's economy will start growing again already next year and will expand by 2.5% on average between 2016 and 2018, Economy Minister Alexei Ulyukayev said Wednesday.

Betting on an already announced expectation that oil prices will rebound in the near future, Mr. Ulyukayev said Russia's economic growth will outpace the global growth starting from 2017. Mr. Putin, who was presented with the fresh government outlook on Wednesday, had previously said that Russia's economy should grow by at least 5% a year.

The World Bank, however, forecasts that Russia's economy will remain under pressure next year and will contract by 0.3% under the bank's baseline scenario.

"The isolation from international economic activities, such as trade and bank transactions, which are pivotal to a country's growth, have proven to be very damaging for the targeted economies even if the sender also suffers to some extent from missed trading opportunities with the sanctioned country," the bank said.

Russia, which has been subject to sanctions by Europe, the U.S., Australia and Canada, has been effectively cut off from the global capital market and is banned from importing some crucial technologies in defense and oil and gas sectors.

Sanctions will hit Russia in three ways, the World Bank said. The penalties will give Russia no opportunity to borrow abroad, will boost volatility of the already battered ruble and will have a negative impact on investors' confidence in Russia.

The World Bank praised how the Russian central bank and government had responded to the economic and political shocks of 2014 and said their actions were swift and adequate, which has helped Russia to avoid recession so far. According to the official data published on Wednesday, Russia's economy grew by 0.4% on year in the fourth quarter.

The World Bank has also presented two alternative scenarios for this year. Under the "lower-bound" scenario, when oil prices average $45 a barrel, Russia's economy is forecast to contract by 4.6% this year. If an average oil price stays at $65 a barrel, the economy could contract by 2.9%.

The World Bank's most optimistic scenario is close to the government's official prediction that the economy will shrink by around 3%. But the World Bank says gross domestic product figures aren't the only issue that the oil-dependent economy will face this year.

"With average inflation for 2015 assumed to be 16.5%, credit costs are likely to stay high, causing consumer credit activity to stagnate," the World Bank said.

Consumer demand has been for years Russia's key economic growth driver but it is now eroded by a rapid devaluation in the ruble and falling real disposable income. Apart from weaker demand, contracting investment activity is likely to continue having an adverse impact on the economy.

"Systematically lower investment rates will ultimately lower Russia's prospects for higher growth in the next few years and limit the already modest potential for growth," the World Bank said.

Write to Andrey Ostroukh at andrey.ostroukh@wsj.com