Russia’s Economy Headed For Even More Trouble

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Slumping oil prices have put Russia’s economy on course for a double-digit inflation and sharp recession next year as authorities scaled up a bailout for the first bank to succumb to this month’s rouble crisis, government ministers said on Friday. Reuters report:

The economy is slowing sharply as Western sanctions over the Ukraine crisis deter foreign investment and spur capital flight, and as a slump in oil prices severely reduces Russia’s export revenues and pummels the rouble.

The government has taken steps to support key banks and address the deepening currency crisis in the past week, including a sharp and unexpected interest rate hike, but analysts are pessimistic on the outlook for both the economy and the rouble.

Finance Minister Anton Siluanov told journalists on Friday the economy could shrink by 4 percent in 2015, its first contraction since 2009, if oil prices averaged their current level of $60 a barrel.

Siluanov also said the country would run a budget deficit of more than 3 percent next year if the oil price did not rise.

“Next year we will, without doubt, have to bring the Reserve Fund into play,” he said, referring to one of Russia’s two rainy-day funds intended to support the economy at times of crisis.

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