Russia warns of recession in 2015

The Russian government has warned the economy will fall into recession next year as Western sanctions, in response to its role in eastern Ukraine, and falling oil prices begin to bite.

Russia's economic development ministry estimates the economy will contract by 0.8% next year.

It had previously estimated the the economy would grow by 1.2% in 2015.

Russia's reliance on tax revenues from the oil industry makes it particularly sensitive to price movements.

Household disposable incomes are also forecast to decline by as much as 2.8%, compared with a previous estimate that they would grow by 0.4%.

The sharp revision in Russia's economic forecast is the

first admission from the government that the economy will contract.

"The current prognosis is based on a drop in GDP by 0.8% in 2015, against the previous prognosis of growth by 1.2%," deputy prime minister Alexi Vedev said.

On Monday, the rouble suffered its biggest one-day fall since 1998.

The currency slid almost 9% against the dollar before rallying after suspected central bank intervention. The currency has already lost 40% in value this year.

The price of oil has fallen nearly 40% since the summer because of oversupply caused by rising US shale oil production.

Demand has also fallen, particularly in China, the world's second largest consumer of the commodity, where industrial production has slowed in recent months.

Last week, OPEC ministers met to discuss a possible cut in oil production in order to stabilise the oil price, but the meeting broke up without agreement.

Opec secretary general Abdallah Salem el-Badri said: "There's a price decline. That does not mean that we should really rush and do something."

The fall in the oil price has been causing concern for several members of the oil cartel, as most require a price above $80 a barrel to balance their government budgets and many need prices to be above $100 a barrel.

Businessday