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Slumping oil prices to plunge Russia into recession next year

Slumping oil prices to plunge Russia into recession next year

MOSCOW: Slumping oil prices have put Russia’s economy on course for a sharp recession and double-digit inflation next year, government ministers said, as authorities scaled up a bailout for the first bank to succumb to this month’s rouble crisis.

The economy is slowing sharply as western sanctions over the Ukraine crisis deter foreign investment and spur capital flight, and as a fall in oil prices severely reduces Russia’s export revenues and pummels the rouble.

The government has taken steps to support key banks and address the deepening currency crisis in the past week, including an unexpected interest rate hike, but analysts are pessimistic on the outlook for both the economy and the rouble. Finance minister Anton Siluanov said the economy could shrink by 4 per cent in 2015, its first contraction since 2009, if oil prices averaged their current level of $60 a barrel.

He said the country would run a budget deficit of more than 3 per cent next year if the oil price did not rise.Rainy-day fund Next year we will, without doubt, have to bring the Reserve Fund into play,” he said, referring to one of Russia’s two funds to support the economy at times of crisis.The government imposed informal capital controls this week, including orders to state-controlled oil and gas exporters Gazprom and Rosneft to sell some of their dollar revenues to shore up the rouble.