Russian Economy in First Major Contraction since October 2009

Russia’s economy contracted sharply in November, for the first time since October 2009, in the biggest sign to date of the impact Western sanctions and a slump in oil prices are having on the slowing economy.

The contraction is likely to worsen as the decline in oil prices gathered pace in December after the oil group OPEC refused to cut output to prop up prices, which are down almost 50 percent since this year’s peak in June.

Oil is the backbone of the Russian economy, which also contracted sharply in 2009 during a previous oil price slump.

But this year’s problems are being compounded by Western sanctions over Russia’s annexation of Crimea and role in a separatist uprising in east Ukraine.

The sanctions have severely reduced the ability of Russian companies to borrow abroad, triggering the worst currency crisis since Russian defaulted on its debt in 1998.

The ruble had lost more than half of its value at one stage in December, although it has recovered since then after the government introduced informal capital controls and steeply raised interest rates.

The Economy Ministry said November GDP contracted by 0.5 percent year-on-year because of lower contributions from the construction, services and agriculture sectors.

Source: Reuters