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Russian economy contracts first time since 2009

[MOSCOW] Russia's economy had its first decline in almost six years after a plunge in oil prices and the rouble's worst crisis since a 1998 default put the squeeze on the world's biggest energy exporter.

Gross domestic product contracted 1.9 per cent in the first quarter from a year earlier after a 0.4 per cent gain in the previous three months, the Federal Statistics Service in Moscow said on Friday, citing preliminary data. That was better than all forecasts in a Bloomberg survey of 24 analysts, whose median estimate was for a 2.6 percent slump. The Economy Ministry had projected that output shrank 2.2 per cent in the period.

The downturn marks what the government predicts will be a three-quarter slump after growth stalled last year amid the standoff with the US and the European Union over Ukraine. Authorities have responded with a stimulus package and three decreases in interest rates this year as reeling consumption pinched sales at companies including PJSC MegaFon.

"The hardest hit was taken by service industries and luxury products, which do rely very much on the exchange rate and the cost of money," Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail before the data release. "Exporters have definitely benefited from a devalued ruble despite a decline in commodity prices worldwide."

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The government has grown more confident about the outlook after warning of a hard landing for the economy in January following a plunge in oil prices and mounting clashes in neighboring Ukraine. In a sign the central bank is drawing a line under the crisis, it sold roubles on Wednesday for the first time since June, moving to rebuild its reserves after spending almost US$90 billion last year to defend the national currency.

The improving sentiment is playing out in the market, with the rouble staging the world's best performance globally against the dollar after losing almost half of its value in 2014.