Russia’s economy contracted last month for the first time in five years amid the sharp fall in oil prices and the collapse of the rouble.
Gross domestic product shrank by 0.5 per cent in November compared to the same month last year, the economy ministry said on Monday, as the slide in Russia’s currency resumed. The collapse had been halted with a series of robust government support measures over the previous 10 days.
The rouble weakened by 5.4 per cent, closing at 57.1 against the dollar in Moscow.
Analysts said the contraction in November showed that the recent steep drop in oil prices and the currency crisis were bringing on a recession, which had long been expected but had been fought off earlier this year.
In the first 11 months of the year, the economy grew by 0.6 per cent compared with the same period last year.
Russia Rouble
Russia’s economic growth had already been slowing sharply since 2013 because of a drop-off in investment. After Moscow’s annexing of Crimea and backing of the separatist war in eastern Ukraine triggered western sanctions which virtually exclude Russian banks and corporates from international capital markets, economists repeatedly predicted that the country would slide into recession this year. But, until October, a temporary revival in industrial production and strong agricultural production helped keep growth just above zero.
However, when oil prices began to plunge dramatically in October, the rouble depreciated so fast that it triggered panic in Russian households. A first wave of selling prompted the central bank to float the rouble in November. On December 16 the rouble suffered its biggest intraday drop since 1998, plummeting to Rbs80 against the dollar in a fully fledged currency crisis.
Even the Russian authorities now predict a recession. The central bank forecasts the economy will contract by 4.5 per cent next year if oil prices average US$60 a barrel.
Dmitry Polevoy, chief economist for Russia at ING Bank in Moscow, said the worsening situation was a result of sanctions, oil prices and the market panic earlier this month. “There is no cause for optimism,” he said.
Although the rouble has regained some of the dramatic losses suffered on December 16, sentiment remains weak. Trading on Monday was thin as Russia prepares for its 10-day new year holiday. The Moscow exchange will be closed from Wednesday, December 31, to Friday, January 2, as well as on Wednesday, January 7 — Orthodox Christmas.