Date
12 December 2017
Inflation is forecast to top 10 percent next year and the economy is expected to shrink another 4 percent due to falling oil prices. Photo: Bloomberg
Inflation is forecast to top 10 percent next year and the economy is expected to shrink another 4 percent due to falling oil prices. Photo: Bloomberg

Russia GDP shrinks for first time in five years

Russia’s economy shrank in November, the first contraction in five years, thanks to western sanctions, a falling ruble and plummeting oil prices. 

Gross domestic product fell 0.5 percent last month, the first drop since October 2009, Reuters reported, citing the economy ministry.

With oil exports forming the backbone of the economy, analysts said the contraction is likely to worsen.

Oil prices are down almost 50 percent from a peak in June.

Western sanctions over Moscow’s role in the Ukraine crisis have deterred foreign investment and led to more than US$100 billion flowing out of the Russian economy this year.

“With the current oil price we expect things to get worse. There is no cause for optimism,” said Dmitry Polevoy, chief economist for Russia and CIS at ING Bank in Moscow.

“This is linked to sanctions first of all, oil and the panic we saw on the market in December. The damage to the banking system and consumer sentiment will take a long time to repair.”

The sanctions have severely reduced the ability of Russian companies to borrow abroad, triggering the worst currency crisis since Russia defaulted on its debt in 1998.

The ruble, which had strengthened on Friday, slumped more than 6 percent against the dollar in early trade on Monday, although it later regained some of the losses.

Overall, the ruble’s weakness will inevitably lead to higher inflation next year by pushing up the cost of imports, threatening President Vladimir Putin’s reputation for ensuring Russia’s prosperity.

Government ministries forecast the slump in oil prices will lead to a 4 percent contraction of the economy next year and that inflation could exceed 10 percent.

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CG/RA

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