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Russian economy to contract at the start of 2015 says central bank

Article By: ,  Financial Analyst
December 15, 2014 5:26 PM

Russia's central bank said today (December 15th) it was likely the economy would contract in the first quarter of next year. It revealed it could shrink by around 4.5 per cent in 2015 as a whole if oil prices average $60 (£38) a barrel, Reuters reports.

The country relies heavily on the export of oil produced domestically and has been affected by sliding oil prices, which have been on the decline since the start of the year. 

However, it recently voiced its opposition to a debate on whether members of the Organization of Petroleum Exporting Countries (Opec) should reduce output.

The central bank also said today that inflation could reach 11.5 per cent early next year and that it would have to keep monetary policy tight next year if it is to meet its mid-term inflation target of four per cent by the end of 2017. Capital outflows of around $120 billion are predicted for next year, $75 billion in 2016 and $55 billion in 2017.

The bank announced that rates would be raised one percentage point to 10.5 per cent, six weeks after it was changed from eight per cent to 9.5 per cent.

Officials stated there are concerns over "further aggravation of inflation risks" and that the central bank would continue to raise the rate to help combat this measure.

Meanwhile, the World Bank said it expected the Russian economy to contract by 0.7 per cent in 2015 before growing by 0.3 per cent in 2016. It assumed in its calculation an average oil price of $78 per barrel for 2015 and of $80 per barrel for 2016.

"Investment is projected to contract for a third year in a row in 2015, because of continued uncertainty, restricted access to international financial markets by Russian companies and banks, and lower consumer demand," Birgit Hansl, World Bank lead economist for Russia, said in a statement.

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