The
Russian government has warned the economy will fall into recession next year as
Western sanctions, in response to its role in eastern Ukraine, and falling oil
prices begin to bite.
Russia's
economic development ministry estimates the economy will contract by 0.8% next
year.
It had
previously estimated the the economy would grow by 1.2% in 2015.
Russia's
reliance on tax revenues from the oil industry makes it particularly sensitive
to price movements. Continue...
Household
disposable incomes are also forecast to decline by as much as 2.8%, compared
with a previous estimate that they would grow by 0.4%.
The
sharp revision in Russia's economic forecast is the first admission from the
government that the economy will contract.
"The
current prognosis is based on a drop in GDP by 0.8% in 2015, against the
previous prognosis of growth by 1.2%," deputy prime minister Alexi Vedev
said.
On
Monday, the rouble suffered its biggest one-day fall since 1998.
The
currency slid almost 9% against the dollar before rallying after suspected
central bank intervention. The currency has already lost 40% in value this
year.
The
Russian finance ministry has also not ruled out spending more than 500 billion roubles from the
budget's Reserve Fund next year.
The
2015-2017 budget allows for spending of up to 500 billion roubles (£5.9bn) next
year from the Reserve Fund, but Maxim Oreshkin, head of the finance ministry's
long-term strategic planning department, said it was possible the government
could spend more to support the economy.
He
added that if the average oil price were $80 per barrel in 2015, the finance
ministry's forecast for a fall in GDP was in line with the economy ministry's
prediction of a 0.8% contraction.
He also
said that a scenario where the oil price averaged $60 per barrel in 2015 was
pessimistic, and at that price the Russian economy would contract as forecast
in the central bank's "stress scenario".
The
bank published its stress scenario last month, saying that at $60 per barrel,
GDP would decline by 3.5% to 4%.
"The
real damage from the collapsing rouble and oil price is to investment and
growth,'' said Chris Weafer, senior partner at Moscow-based Macro-Advisory,
said in a note to investors.
"Russia
is a non-investible country for all but the bravest of hedge fund investors
right now, and will remain in this category until both the ruble and oil
stabilize at minimum."
The price of oil has fallen
nearly 40% since the summer because of oversupply caused by rising US shale oil
production.
Demand
has also fallen, particularly in China, the world's second largest consumer of
the commodity, where industrial production has slowed in recent months.
Last
week, OPEC ministers met to discuss a possible cut in oil production in order
to stabilise the oil price, but the meeting broke up without agreement.
Opec
secretary general Abdallah Salem el-Badri said: "There's a price decline.
That does not mean that we should really rush and do something."
The
fall in the oil price has been causing concern for several members of the oil
cartel, as most require a price above $80 a barrel to balance their government
budgets and many need prices to be above $100 a barrel.
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