Russia forecasts economic slump as bailed-out bank gets more funds

Fri Dec 26, 2014 5:25pm EST
 
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By Darya Korsunskaya and Vladimir Abramov

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

The economy is slowing sharply as Western sanctions over the Ukraine crisis deter foreign investment and spur capital flight, and as a slump in oil prices severely reduces Russia's export revenues and pummels the ruble.

The government has taken steps to support key banks and address the deepening currency crisis in the past week, including a sharp and unexpected interest rate hike, but analysts are pessimistic on the outlook for both the economy and the ruble.

Finance Minister Anton Siluanov told journalists on Friday the economy could shrink by 4 percent in 2015, its first contraction since 2009, if oil prices averaged their current level of $60 a barrel.

Siluanov also said the country would run a budget deficit of more than 3 percent next year if the oil price did not rise.

"Next year we will, without doubt, have to bring the Reserve Fund into play," he said, referring to one of Russia's two rainy-day funds intended to support the economy at times of crisis.

Crude prices have almost halved from their June peak amid a global glut and a decision by producer group OPEC not to cut output. Saudi Arabia said on Friday it was prepared to withstand a prolonged period of low prices.

"We need to have our budget break even at $70 per barrel by 2017," said Siluanov.   Continued...

 
An employee counts Russian ruble banknotes at a small private shop selling home appliances in Krasnoyarsk December 26, 2014. REUTERS/Ilya Naymushin