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Russia to sink into recession

December 2, 2014

The Russian economy is set to fall into recession next year as Western sanctions, low oil prices and massive capital outflows will take their toll. Moscow also believes its weakening currency will fan inflation.

Schneesturm Russland Moskau Roter Platz März 2013
Image: Reuters

The Russian Economics Ministry on Tuesday dramatically lowered its economic outlook for 2015, saying it expected the country's output to shrink by 0.8 percent rather than growing by 1.2 percent as forecast earlier this year.

The significant downward revision was mainly prompted by the drop in prices for oil and gas, which are Russia's main source of national income. Deputy Economics Minister Alexei Vedev told reporters in Moscow the government was expecting the average oil price to remain low at about $80 (64 euros) per barrel - down from an earlier estimate of $100 for 2015.

Vedev also said that this would lead to the national currency, the ruble, remaining weak, with the currency's average rate floating around 49 rubles per US dollar next year. On Monday, the Russian currency saw its steepest one-day decline since 1998, falling by 8 percent to 50 rubles for one dollar.

In 2015, the ruble's lower value would cause inflation to rise to 7.5 percent, Vedev added, as imports to Russia would become more expensive.

The Russian Economics Ministry didn't explicitly mention the likely impact of Western sanctions on its economic forecast, but said the measures, imposed over the country's role in the Ukraine conflict, would lead to an estimate outflow of capital to the tune of $125 billion this year. In 2015, the capital flight was expected to continue with net outflows of $90 billion.

uhe/pad (Reuters, AP, AFP)