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Russia economy

December 29, 2014

Russian growth has declined for the first time since 2009 as sanctions by the West continue to bite. The ruble extended its losses on the news, continuing his downhill slide over the past few months.

Symbolbild Russland Wirtschaft Rezession Rubel Sanktionen
Image: Vasily Maximov/AFP/Getty Images

Russia's gross domestic product (GDP) fell by 0.5 percent in November, compared to the same month last year. The Economy Ministry said lower contributions from construction, services and agriculture were behind the the decline.

It was the first contraction since October 2009, caused by falling oil prices and the impact of Western sanctions imposed due to the conflict in Ukraine.

As oil is the backbone of the Russian economy and OPEC is refusing to cut output to shore up the oil price, Russian GDP is expected to contract further.

The ruble fell to 57 to one US dollar on the news on Monday morning. The Russian currency, which has been one of the worst performing currencies in 2014, had started losing ground against the greenback again on Friday, following a five-day rally.

Plunging Ruble - The repercussions of the Russian currency crisis

The ruble's tentative recovery was triggered by government measures to support the currency through a rise in interest rates and by imposing informal capital controls including orders to large state-controlled oil and gas exporters Gazprom and Rosneft to sell some of their dollar revenues.

Last Friday, the Finance Ministry predicted a 4-percent fall in growth for 2015, if oil prices remained at around $60 per barrel. It would also cause a budget deficit of 3 percent, Finance Minister Anton Siluanov said.

The weak ruble will also keep the rate of inflation at double digits, the government predicts.

ng/hg (AP, Reuters, AFP)

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