Russia’s Economy Falls In Q1 as Woes Mount

The Russian economy has contracted in the first three months of 2015 because of low oil prices, weaker spending and sanctions from the West.

It shrank by 1.9% between January and March compared to the previous year, according to the Russian statistics agency.

That compares to annual growth of 0.4% in the previous quarter.

President Vladimir Putin has said the government expects Russia’s economy to start growing again next year.

But the European Bank for Reconstruction and Development says that it expects the economy to contract by 4.5% in 2015 and 1.8% in 2016.

The country has hit been hard by a sharp fall in oil prices in the past year, its main export, as well as by sanctions imposed by the West over the Ukraine crisis.

‘Painful’

“The best that can be said about Q1 GDP [first quarter gross domestic product] data from Russia is that the economy has avoided outright collapse and is, instead, merely on the cusp of recession,” says Neil Shearing, chief emerging markets economist at Capital Economics.

Prime Minister Dmitry Medvedev had previously predicted a 2% decline in the first quarter of 2015.

“Though better than expected, this is still a painful fall for any economy,” said Craig Botham, emerging markets economist at Schroders.

“Further contraction seems inevitable given the lagged effect of monetary policy and the fiscal tightening underway,” he added.

Meanwhile, the Russian central bank has extended anti-crisis measures aimed at helping banks that have suffered from the low value of the rouble and sanctions in Ukraine.

It initiated the measures in December and initially intended to end them in July. Now, they will not do so until October.

The value of the rouble has slumped 30% against the US dollar over the last 52-week period.

The weak currency and inflation has hit spending in Russia.

“Consumers in particular have borne the brunt of the economy’s problems, with real wages contracting by 8.4% year-on-year in Q1,” says Shearing.

Sources: BBC News