Russia reveals recession concerns

The Russian government has warned of falling into recession in 2015.

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By :  ,  Financial Analyst

Russia could fall into recession next year, that is the warning from the country's government.

Ministers at Russia's economic development ministry estimate the economy will contract by 0.8 per cent in 2015, this is a significant change from previous predictions of 1.2 per cent growth in the year. Russia has been hit hard by falling oil prices, while also being hampered by Western sanctions imposed for the country's role in the conflict in eastern Ukraine.

On Monday (December 1st), the rouble suffered its biggest one-day decline since 1998 when it fell nine per cent against the dollar. The country relies heavily on revenues from oil exports but as prices continue to fall it is impacting significantly on Russia's economy. As the rouble fell, Brent crude hit $67.53 (£43.16), a five-year low, while US crude was down to $66.34 a barrel.

Russia is sensitive to price movements in the oil markets and was strongly opposed to a potential decision by the Organization of Petroleum Exporting Countries (Opec) to reduce production levels. Despite not being a member of Opec, Russia confirmed that it would not be cutting its output but Opec decided to make the same decision.

In what was a first admission by the government that the economy will contract, Alexi Vedev, deputy prime minister, said: "The current prognosis is based on a drop in GDP by 0.8 per cent in 2015, against the previous prognosis of growth by 1.2 per cent."

The price of the rouble has been sliding since the turn of the year and has so far dropped by 40 per cent against the dollar. Russia's finance ministry stated that there was still the possibility of spending over 500 billion roubles (£5.8 billion) from the budgets' Reserve Fund over the next 12 months to tackle the threat of recession.

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