This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2014/12/03/business/russia-forecasts-a-recession-in-2015-signaling-a-toll-from-sanctions-and-oil-prices.html

The article has changed 3 times. There is an RSS feed of changes available.

Version 0 Version 1
Russia Forecasts a Recession in 2015, Signaling a Toll From Sanctions and Oil Prices Russia Forecasts a Recession in 2015, Signaling a Toll From Sanctions and Oil Prices
(about 4 hours later)
MOSCOW — After months of insisting that Russia could weather sanctions and plunging oil prices, Moscow has for the first time acknowledged that the economy would fall into a recession next year. MOSCOW — After months of insisting that Russia can weather sanctions and plunging oil prices, Moscow for the first time is acknowledging that the economy could fall into a recession next year.
The Ministry of Economic Development, which publishes the government’s economic outlook, on Tuesday revised its forecast for 2015 to show a contraction of 0.8 percent, compared with a previous projection of 1.2 percent growth.The Ministry of Economic Development, which publishes the government’s economic outlook, on Tuesday revised its forecast for 2015 to show a contraction of 0.8 percent, compared with a previous projection of 1.2 percent growth.
The ruble dropped against the dollar, having opened at 52 to the dollar and slipping to 53 in afternoon trading on Tuesday. That continued its nose dive in recent months, driven by Russians’ fears of economic isolation and their eagerness to change rubles into dollars or euros to move wealth out of the country. So far this year, the ruble has fallen more than 40 percent against the dollar. The combination of sanctions and plummeting oil prices is catching up with Russia’s economy, wobbly in the best of times because of its heavy reliance on commodity exports.
The Russian stock market index Micex also dropped on the announcement, but it regained the loss later in the afternoon. In the face of the weakness, the ruble has been in a free fall, driven by Russians’ fears of economic isolation and their eagerness to change rubles into dollars or euros to move wealth out of the country.
Also boding ill for the Russian economy was the announcement on Monday by President Vladimir V. Putin to scrap plans for South Stream gas pipeline, a grandiose project that was once intended to establish the country’s energy dominance in southeastern Europe but that instead fell victim to Russia’s increasingly strained relationship with the West. The ruble opened at 52 to the dollar and slipped to around 53 in trading on Tuesday. So far this year, the ruble has fallen more than 40 percent against the dollar.
The combination of sanctions and plummeting oil prices is catching up with Russia’s economy, wobbly in the best of times for its overreliance on commodity exports. Also boding ill for the Russian economy was the announcement on Monday by President Vladimir V. Putin that he would scrap plans for South Stream gas pipeline. The project, once intended to establish the country’s energy dominance in southeastern Europe, fell victim to Russia’s increasingly strained relationship with the West.
Western sanctions over Russia’s annexation of the Crimea Peninsula and its backing of rebels in eastern Ukraine have crippled Russian banks by restricting them to short-term credit. Oil and natural gas make up about 60 percent of Russia’s export earnings. More policies shifts could follow. The Russian economy has a history of making hairpin turns from growth to sharp decline, imposing sudden and wide-ranging limitations on the country’s foreign and domestic politics.
The economic woes show little signs of easing anytime soon.
Western sanctions over Russia’s annexation of the Crimean Peninsula and backing of rebel groups in eastern Ukraine have crippled Russian banks by restricting them to short-term credit.
The weakness in oil prices, now around $72 a barrel, is complicating matters. Oil and natural gas make up about 60 percent of Russia’s export earnings.
In another worrying sign, Russians have been bulking up on consumer items as the ruble depreciates, converting savings into durable goods lest their savings become worthless. Appliance stores in Moscow have had runs on refrigerators, washing machines and televisions. It is a pattern seen before previous ruble crashes, indicating evaporating faith in the currency.
“I expect inflation to go to double digits early next year,” said Vladimir Tikhomirov, chief economist at BCS Financial Group.
“The only reason people haven’t started changing their savings into currency in larger amounts is because it happened so fast,” he added. “It caught them off guard.”
Russia’s state finances appear solid for now. The depreciation of the ruble has raised tax income from commodity exports priced in dollars, like oil.
And the central bank and two sovereign wealth funds hold billions, giving the country a decent cushion. Still, economists argue that the headline numbers exaggerate somewhat the amount available to prop up the ruble or bail out companies, as the money is already committed to long-term investments in Russia.
The deteriorating economy also puts Mr. Putin in a difficult spot.
He has presided over more than a decade marked largely by an expanding economy and rising inflation-adjusted wages. Now that record is coming to a close.
Mr. Putin did not address the projected economic decline publicly on Tuesday, and ministers disagreed on the severity of the problems.
Aleksey Vedev, the deputy minister of economic development, told reporters that “the Russian economy is harmed by three forms of crisis or elements of instability: structural, speculative and geopolitical risks,” according to Tass, the state-run news agency. “So in my view it is a little simplistic to assert that the Russian economy lowers its rate of growth or goes into the negative only due to oil prices.”
Anton Siluanov, the Russian finance minister, called the report a “preliminary assessment,” and said it had not been approved by the entire cabinet. The Ministry of Finance and Ministry of Economic Development often release competing and contradictory economic data.
Mr. Siluanov also argued that the ruble was now undervalued after its long slide. He said the ruble might stabilize next year at 45 to the dollar, stronger than the economy ministry’s estimate on Tuesday of an average ruble-dollar exchange rate of 49 in 2015.