Russia's inflation-contraction
January 14, 2015
The outlook for the Russian economy became more dismal Wednesday, as the government warned inflation could reach 17 percent while the World Bank said the economy would contract significantly this year.
State-run TASS news agency quoted Deputy Oil Minister Alexei Vedev as saying "Peak inflation will come in March and April when year-on-year inflation could reach 15 to 17 percent."
The news came as the World Bank predicted Russia's economy would contract by 2.9 percent in 2015 - and manage just 0.1 percent growth in 2016. In its latest Global Economic Prospects report, the Washington-based lender said: "Tensions with Ukraine, sanctions, and falling crude oil prices" were just the beginning of Russia's problems.
Russia's bleak outlook contrasted with the bank's overall growth forecast for Europe and Central Asia of 0.8 percent in 2015 - a number dragged down by the Russian figures. Ironically, the bank took a more optimistic line on Ukraine, which it said would contract only 2.5 percent this year and rebound by 3.5 percent next year.
The bank estimated that Russian GDP grew 0.7 percent in 2014 - higher than the Russian government's own preliminary analysis, which Vedev said showed that growth had shrunk to "between 0.5 to 0.6 percent."
High reliance on oil exports
It has been a difficult year for Russia. The ruble has been hit hard by collapsing oil prices and Western sanctions over its role in the conflict in Ukraine. The ruble has fallen 16 percent against the dollar since the start of the year, following a plunge of some 41 percent in 2014.
Its fall in value closely mirrors that of the price of oil, Russia's main export, which is now less than half of what it was last summer.
Russia has also had to subsidize Crimea, the Ukrainian peninsula it annexed in March in a move that sparked international condemnation. President Vladimir Putin has called for more military spending to "counter" NATO.
On Wednesday, Finance Minister Anton Siluanov said Moscow planned to slash spending by 10 percent across the board, except for defense.
"With the oil price around $50 per barrel ... we will lose 3 trillion rubles in revenues," he said.
Also on Wednesday, Economy Minister Alexei Ulyukayev said things could get worse. He said there was a "pretty strong" possibility that rating agency Standard & Poor's could downgrade the country's credit rating to "junk" - severely affecting its ability to tap capital markets.
sgb/sri (AFP, AP)