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Russia Expecting Trouble

Russia Expecting TroubleRussia Expecting Trouble

The Russian government has warned the economy will fall into recession next year as western sanctions 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 economy would grow by 1.2% in 2015, BBC reported.

Russia’s reliance on tax revenues from the oil industry makes it particularly sensitive to price movements.

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.

  Ruble’s Further Fall

The Russian ruble scrambled off a record low on Wednesday amid speculation that the central bank could intervene in the market to support the currency, AP reported.

The ruble has lost more than 40 percent of its value this year, hit by low oil prices and Western sanctions against Russia over its role in Ukraine’s crisis.

After touching yet another record low, the ruble recovered somewhat to trade 1.2 percent higher on Wednesday, at 53.2 rubles, as some traders speculated that the Russian Central Bank could act to support it.

The ruble is among the most battered currencies this year, along with the Ukrainian hryvnia. Its decline was compounded by a collapse in oil price, a crucial export for the Russian economy.

Monetary officials in the past weeks had refused to intervene to stop the ruble’s slide. The central bank revealed on Wednesday, however, that it had intervened Monday to stem the currency’s decline by selling $700 million and buying rubles in the open market. The currency had fallen by as much as 6 percent at one point on Monday.

  Budget

President Vladimir Putin on Wednesday signed the government budget for the next year. It runs an $8 billion deficit for the first time in years and balances on the oil price of $100 per barrel - Brent crude currently hovers around $70.

The 2015-2017 budget allows for spending of up to 500b rubles ($9.2b) 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.

 

Financialtribune.com