Russia warns of recession in 2015

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Russian bank notes. (iStock)
Russian bank notes. (iStock)
Russia’s Ministry of Economic Development has revised down its economic growth forecast for 2015 and warns that the economy will fall into recession as Western sanctions and falling oil prices begin to bite.

The news caused the stock market to drop and pushed the ruble to a fresh record low against the dollar.

The ministry on Tuesday said that it estimates gross domestic product shrinking by 0.8% next year, while it had previously estimated a 1.2% growth, Gazeta writes. A month ago the central bank predicted zero growth next year. A contraction in GDP would be Russia’s first since 2009.

In its macro forecast for the ruble in 2015, the ministry has revised the rate from 49 to 37.7 against the dollar. Prices will rise faster than previously predicted: this year inflation will reach 7.6% instead of the predicted 7.4%, and next year 9.4% instead of 6.7%.

The release of the forecast on Tuesday afternoon weighed on the Russian stock market and the ruble, which fell 5.4 percent lower against the dollar, to a new all-time low of 53.97 per dollar, Huffington Post writes.

“The falling oil prices have led to a significant weakening of the exchange rate of the ruble, which has a rather strong inflationary effect and therefore the forecast for inflation in 2014-2015 has been raised,” Deputy Minister Aleksey Vedev said according to RBC. “The inflationary pressure reduces the population’s purchasing power, and this effects the whole forecast for real consumer spending.”

The forecast for outflow of capital from Russia the Ministry of Economic Development increased with one fourth – from 100 billion USD to 125 USD in 2014. In 2015 the ministry expects 90 billion USD to be taken out of Russia – the previous forecast was 50 billionUSD.

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