Russia Lowers Economic Forecast

Russia lowered its economic forecasts for this year and next year as a renewed plunge in energy prices sank the ruble and sanctions over Ukraine looked set to persist.

Gross domestic product in the world’s largest energy exporter will fall 3.3 percent in 2015 before rebounding as much as 2 percent in 2016, Economy Minister Alexei Ulyukayev said Tuesday in Kuala Lumpur, the Interfax news service reported. The ministry had earlier projected a 2.8 percent contraction followed by 2.3 percent growth.

Russia’s slump reached a “fragile” bottom last month, Ulyukayev said, predicting an improvement in the economy in the fourth quarter. “I don’t think we’ll go any lower but it’s hard to say when we’ll see significant growth.”

Russia, mired in its first recession in six years, is battling a new wave of oil-price weakness that’s sent the ruble to its lowest level against the dollar in seven months. Adding to the pain, Foreign Minister Sergei Lavrov said Monday that U.S. and European sanctions over the conflict in Ukraine will stay in place for a “very long” time. Ulyukayev said the measures, which curb access to capital markets, will remain through 2018.

Oil Low

Brent crude, used to price Russia’s main export blend Urals, gained 93 cents to $43.62 a barrel today. With oil languishing near a six-year low, the ruble is the world’s worst-performing currency in the past 12 months, dropping 48 percent, data compiled by Bloomberg show. That’s stoking inflation, which accelerated to a 13-year high of 16.9 percent in March.

Consumer-price growth will ease to somewhere above 11 percent on an annual basis by year-end, Ulyukayev said. Oil prices may fall to less than $40 a barrel in the short term before rising to an average of about $55 next year, he added.
“The Economy Ministry is optimistic regarding when growth will turn positive and how strong growth will be once this happens,” Daniel Hewitt, an economist at Barclays Plc in London, said by e-mail. Barclays is maintaining its forecast for a contraction of 4 percent this year for now, he said.
It’s the second time this year the Economy Ministry has cut its forecast. Before improving its estimates in May, after a short period of currency stabilization, the ministry lowered its projections in February after the ruble’s worst crisis since 1998.

The Bank of Russia said that in a stress-case scenario, with Urals reaching $40 a barrel in the fourth quarter and remaining close to that level through 2018, Russia’s recession will last three years, the longest in two decades. GDP may contract 5.7 percent in 2015 under that scenario, the regulator said.


Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell
Dean Popplewell

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