World Economy

Russia Economy to Shrink by 3%

Russia Economy to Shrink by 3%Russia Economy to Shrink by 3%

Russia’s economy ministry said on Saturday it expected gross domestic product to fall 3 percent this year, more optimistic than many analysts’ forecasts of a 4-5 percent drop.

The economy has been hit by a sharp fall in oil prices and sanctions imposed on Moscow for its role in the Ukraine crisis, leaving Russia facing its first year of recession since 2009 in the wake of the global financial crisis.

Economy Minister Alexei Ulyukayev told Russian news agencies that the 3 percent forecast was actually a “conservative” figure compared with more upbeat consensus forecasts, Interfax reported. But analysts polled in late January by Reuters saw the Russian economy falling by 4.2 percent this year and Moody’s rating agency said earlier this month that GDP fall may by as much as 5.5. percent. Analysts at Danske in Copenhagen said in a recent note GDP may contract by 8 percent.

The ministry said earlier it was using an average price of oil, Russia’s chief export, of $50 per barrel -- half of the $100 (66 pounds) per barrel the ministry envisioned last summer in its economic scenario for this year..

Inflation, according to Ulyukayev, would not ease this year and would hit 12 percent by the end of 2015 -- compared to 11.4 in 2014. Net capital outflows, spurred by a falling rouble and increased tension between Moscow and the West over Ukraine, would probably reach $115 billion, he added.

Capital investment – cash invested in firms’ tangible assets such as building and infrastructure – was likely to fall by 13 percent this year and retail sales by 8 percent, Ulyukayev said.