Russia will fall into recession next year under the weight of western sanctions imposed over Ukraine and lower oil prices, the economy ministry warned.
Gross domestic product is now expected to shrink by 0.8% in 2015, after the ministry sharply cut its earlier forecast of 1.2% growth.
Alexei Vedev, the Russian deputy economy minister, said: ”We now assume that sanctions will remain in place throughout the whole of 2015. This for us means closed capital markets for the majority of Russian companies and banks, as well as unfavourable conditions for investment – uncertainty and a lack of security.”
The ministry also cut its forecast for the average oil price next year to $80 a barrel from $100 a barrel. Oil and gas are Russia’s main exports.
The Russian rouble has fallen sharply as investors respond to fears over what impact falling oil prices will have on the economy.
On Monday, the rouble fell to a record low against the dollar, prompting the Russian central bank to intervene and stem the losses.
The currency was up against the dollar on Tuesday morning but fell again following the downgraded forecasts, down 2.4% at 52.55 roubles per dollar.
Vedev said lower oil prices were weighing on the rouble and the outlook for growth. “The fall in oil prices has caused a significant weakening of the rouble’s exchange rate, which gives rather strong inflationary effect.
“And higher inflationary pressure reduces the purchasing power of the population, which reduces consumption.”
The ministry is now expecting inflation to be 7.5% at the end of next year, higher than its earlier forecast of 5-6%.
It is also expecting capital flight from Russia to continue amid heightened uncertainty. The ministry raised its forecast for 2014 net capital outflows to $125bn from $100bn, and to $90bn in 2015 from $50bn.
