Russia will enter recession in 2015

Russia will enter into recession in 2015, burdened by economic sanctions imposed by Western countries and falling oil prices to stimulate inflation and contributed to the collapse of the ruble, according to the latest official estimates.

After years of growth under President Vladimir Putin, with the exception of the 2008 crisis, Russia’s future appears bleak despite the optimistic statements by the Kremlin. The day after the precipitous fall of the ruble against the dollar and the euro, the Russian Ministry of Economic Development released its forecast for 2015: all indicators have been revised downwards.

The economy will contract by 0.8%, far from the previous forecast which predicted growth of 1.2% of Gross Domestic Product (GDP). For this year, the ministry shuffles growth of 0.6% versus 0.5% previously expected despite being expected in the last quarter is “zero or even negative,” according to Deputy Economy Minister Alexei vedev .

For 2016-2017, Anvar Amirov, an analyst with consulting firm PPA predicts the economy to grow “between 1 and 2%”, but not “sufficient for the development of the economy” so I expected “stagnation”.

The ruble on the rollercoaster

The exchange market has immediately reacted to the announcement of economic indicators, wasting the ruble 89 kopecks against the dollar and 85 against the euro in ten minutes. At 1600 GMT, the Russian currency jumped to a record of weakness and traded at 53.90 rubles per dollar and 66.80 rubles per euro paid.

Since early this year, the ruble has lost more than 40% of its value against the euro and 60% against the dollar. Its fall was accelerated by the decision of the Organization of Petroleum Exporting Countries (OPEC) to maintain its level of oil production, despite the generous offer on the market.

This decision has also led to the fall of oil prices on Monday touched its lowest level in five years, affecting the ruble since half of fiscal revenues depend on selling Russian crude. For this reason, the Russian authorities have announced that they want to reduce by 5 million tonnes oil exports.

Massive capital flight

However, the economic crisis being experienced by Russia to simple oil factor is not reduced, remember Alexei vedev. “The Russian economy is it exposed to three types of crisis or instability factors. Structural, speculative or geopolitical Therefore, it is simplistic to think that the growth of the Russian economy is limited exclusively to oil prices,” he estimated.

The country faces other challenges such as the impact of sanctions imposed by the European Union and the United States against Moscow, which they accuse of supporting the separatist Ukraine. These sanctions affecting the financial heart of Russia, “will be maintained during 2015,” dragging down growth, vedev said.

“This means that most banks and Russian companies can not access global capital markets,” explains the Ministry of Economy in a report. This is one of the causes of massive capital flight that will be around the 125,000 million this year, before falling to 90,000 million next, according to the ministry. The Russian population has also faced inflation that this year will be around 9% and 10% in the first half of 2015.

Imported products are most affected, as evidenced by the US group Apple last week prices rose a blow up to 25%. And according to the Russian press, airline tickets will increase to 12%. “How these bad factors will influence the government’s economic policy? We’ll find out Thursday when priorities are set in the speech of Vladimir Putin,” Russian President in Parliament.