Business

Aftereffects: Russian economy to shrink by 3% in 2015

Tumbling oil prices, western sanctions major reasons for the decline

Afp January 31, 2015

Expectations: 0.8% is the fall in output predicted earlier by the economy minister, but some economists had said that the contraction could be as big as 5%, depending on the price of Russia’s main export commodity. PHOTO:REUTERS

MOSCOW: Russia’s Economy Minister Alexei Ulyukayev has forecast gross domestic product (GDP) will fall by 3% in 2015 on the back of a collapse in oil prices and a massive capital flight.

“We have issued a forecast for 2015 which uses the current prices, that is $50 a barrel, for the entire year,” Ulyukayev was quoted by Russian news agencies as saying.

Ulyukayev emphasised that his prediction of a 3% contraction was conservative given that most analysts forecast oil prices to recover later this year.

The economy ministry had previously forecast a 0.8% fall in output, but some economists had said that the contraction could be as big as 5%, depending on the price of Russia’s main export commodity.

Russia’s central bank has forecast a 4.8% shrinkage. The economy has been hit by a double whammy of tumbling oil prices and Western sanctions that have closed off the economy from foreign borrowing.

The Russian rouble has fallen by half against the dollar and the euro since the beginning of last year, leading prices to rapidly rise.

As a result of the economy’s demise, capital flight last year shot up to $150 billion – a record since the fall of the Soviet Union.

Ulyukayev said the figure this year was expected to reach $115 billion, and that investment would fall by 13%.

Inflation predictions have also been revised upwards for the current year, from 7.5% to 12%, news agencies cited the minister as saying.

January inflation will be 13.1%, he said. Real wages will fall by over 9% over the year, he added. The government has unveiled a series of measures to shore up the economy, including increasing financing to banks and boosting spending on pensions and unemployment programmes.

On Friday, the central bank announced a surprise reduction of its key interest rate from 17% to 15%, which it said aimed at averting the sizeable decline in economic activity.

Published in The Express Tribune, February 1^st, 2015.

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