Russia’s economy shrinks for first time in five months

Russia’s economy shrank for the first time in five months as declines in oil prices rippled through consumption and industrial output, highlighting the risks to a recovery from the country’s recession.

Gross domestic product slumped 0.3 per cent in November on a seasonally adjusted basis after gains of 0.1 per cent in October and 0.3 per cent in September, the Economy Ministry said in a report on its website. GDP shrank 4 per cent last month from a year earlier.

A renewed sell-off in oil is threatening to extend the recession into a second year for what would be Russia’s longest slump in two decades.

While GDP contracted at a slower annual pace last quarter, shrinking crude prices remain a challenge to president Vladimir Putin, who said this month that Russia had put the worst of the economic crisis behind it.

"The risk of a deeper decline has intensified," Andrei Klepach, chief economist at Russian state development lender Vnesheconombank and a former deputy economy minister, said in a report. The resumption of a rout in oil this month and worsening tensions in geopolitics will contribute to "a stable negative trend, forcing downgrades in forecasts for next year."

Brent crude, used to price Russia’s main export blend Urals, is poised to end 2015 with the lowest annual average price in 11 years after the Organisation of Petroleum Exporting Countries effectively abandoned output limits earlier this month.

That’s hurting Russia by eroding budget revenue, crippling the ruble and stoking inflation.

Russian stocks are on track for their first monthly loss since September as the outlook dims for the economy. The ruble is the world’s third-worst performer in December with an 8 percent loss against the dollar.

The Economy Ministry estimates GDP will increase 0.7 per cent next year after a contraction projected at 3.9 per cent in 2015.

The central bank is less upbeat, seeing a decline of as much as 1 percent in 2016 if Urals averages $50 a barrel.

Brent lost 1.9 per cent to $37.17 a barrel on the London-based ICE Futures Europe exchange. "If the oil price remains at the current level for half a year or a year, then we'll see the economic decline extended," former finance minister Alexey Kudrin said in an interview with Interfax news service published Monday. "We can't say that the peak of problems has passed."

Bloomberg