During the first 3 months of 2015 the Russian economy has contracted. This is as a result of low oil prices, weak spending and sanctions being placed on the country from the West.
The Russian economy shrunk by 1.9% between January and March this year, in comparison to the previous year according the statistics agency of Russia. This compares to annual growth of 0.4% that took place during the previous quarter.
The country’s President, Vladimir Putin says that the government expects Russia’s economy to begin growing again in 2016 but the EBRD (European Bank for Reconstruction and Development) says that they expect Russia’s economy to contract by 4.5% in 2015 and then by 1.8% in 2016.
Russia has been hit hard by the sharp fall in oil prices during the past year, which is its main export. Plus sanctions imposed by the West over the crisis in Ukraine have led to this situation.
Neil Shearing the chief emerging markets economist at Capital Economics says: “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”
But the country’s Prime Minister, Dmitry Medvedev had predicted previously that there would a 2% decline during the first quarter of 2015.
Craig Botham, who is the emerging markets economist at Schroders stated that: “Though better than expected, this is still a painful fall for any economy.” He also added “Further contraction seems inevitable given the lagged effect of monetary policy and the fiscal tightening underway.”
Meanwhile, Russia’s central bank has extended its anti crisis measures that are aimed at helping the banks, which have suffered from the value of the rouble being so low and because of the sanctions in place over Ukraine. They initiated measures in December and were intending to end them in July, but they won’t do so now until October.
The value of rouble has slumped against the US Dollar by 30% during the past 52 week period.
Due to the country’s week currency and inflation spending has been hit hard in Russia.
Mr Shearing stated that: “Consumers in particular have borne the brunt of the economy’s problems, with real wages contracting by 8.4% year on year in Q1.”