Russian economy heading for recession

A woman looks at a modern mannequin as customers pass by the Christmas decorations in Moscow. The Ukraine conflict and lower oil prices have exacted an economic toll on the world's biggest energy exporter. Photo: AP

A woman looks at a modern mannequin as customers pass by the Christmas decorations in Moscow. The Ukraine conflict and lower oil prices have exacted an economic toll on the world's biggest energy exporter. Photo: AP

Published Dec 3, 2014

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Olga Tanas Moscow

RUSSIA’S economy may enter its first recession since 2009 in the first quarter, Deputy Economy Minister Alexei Vedev said, as the Ukraine conflict and lower oil prices exact a toll on the world’s biggest energy exporter.

Gross domestic product (GDP) might shrink 0.8 percent next year, compared with an earlier estimate of 1.2 percent growth, Vedev said yesterday. GDP would probably shrink or show zero growth this quarter and decline in the next three months on an annual basis, he said.

A recession is usually defined as two consecutive quarters of contraction on a quarterly basis.

The economy is succumbing to sanctions imposed over Ukraine as the plummeting rouble stokes inflation and a 30 percent drop in oil prices erodes export revenue.

The revised outlook marks the first acknowledgement by the government in Moscow that the economy would not grow amid Russia’s worst confrontation with the US and its allies since the Cold War.

“The elements of instability afflicting Russia’s economy range from structural to geopolitical,” Vedev said. “One of the key factors is the lower price of oil.”

The rouble has weakened more than 26 percent against the dollar in the past three months, the worst performer among more than 170 currencies tracked by Bloomberg. The rouble traded 1.5 percent weaker at 52 per dollar at 12.59pm in Moscow.

Russia has been targeted by US and EU sanctions over the crisis in Ukraine, with the penalties curbing access to global capital markets and stoking outflows from the rouble. President Vladimir Putin denies involvement in the unrest, which began after he annexed the Black Sea peninsula of Crimea. – Bloomberg

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