Russian economy shrinks for first time since 2009

[MOSCOW] Russia's economy shrank in November for the first time in five years, the government said on Monday, as sliding oil prices and Western sanctions over Ukraine take their toll.

The economy ministry said gross domestic product for the month contracted by 0.5 per cent year-on-year for the first time since October 2009.

The ministry chalked up the negative growth to a slowdown in a number of sectors including services, agriculture, extraction of mineral resources and construction.

Under pressure from the low oil price and the Western sanctions over the Kremlin's support for separatists in Ukraine, Russia is sliding into a full-blown economic crisis, with the collapse of the ruble and growing inflation.

The ruble fluctuated wildly earlier this month, with the central bank raising interest rates to 17 per cent from 10.5 per cent to prop up the currency and Russians snapping up imported goods ahead of expected price hikes.

Finance Minister Anton Siluanov said last week that the economy could shrink 4.0 per cent next year based on oil prices of around US$60 a barrel and predicted a budget deficit of 3.0 per cent.

He said the government would have to further reduce expenses or tap into its reserves, noting that a planned 10 per cent spending cut was not enough.

The central bank has warned that the economy could contract by up to 4.8 per cent next year based on current oil prices, with a recovery not expected until 2017.

AFP