MOSCOW – Russia’s economy shrank in November for the first time in five years, the government said Monday, illustrating the sharply changing fortunes of President Vladimir Putin’s rule as he faces falling oil prices and Western sanctions.
The figures were the latest indication that Russia was sliding toward recession — and potentially a deep one should oil prices remain low — presenting a major challenge to Putin amid his current showdown with the West.
The economy ministry said gross domestic product for the month contracted by 0.5 percent year-on-year for the first time since October 2009.
The ministry chalked up the negative growth to a slowdown in sectors including services, agriculture, extraction of mineral resources and construction.
Households’ real disposable incomes went down by nearly 3 percent in November compared to October when they were up 2.4 percent, the economy ministry’s figures showed.
Under pressure from the low oil price and Western sanctions over the Kremlin’s support for separatists in Ukraine, Russia is heading for a sharp recession complete with the collapse of the ruble and double-digit inflation.
“This is the beginning of a recession,” Ruslan Grinberg, director of the Institute of Economics at the Russian Academy of Sciences, told AFP.
Putin’s pact with voters has for years been based on relative prosperity and high oil prices.
He has dismissed the financial troubles as temporary, saying the economy would adjust to the low oil price and rebound in two years at most.
But many economists said such statements exposed a lack of a firm plan to deal with the crisis.
The ruble has fallen some 40 percent against the dollar this year.
On Monday, the ruble was down by around 6 percent against the greenback at the opening but later recovered some of the losses and traded at around 56 rubles to the dollar in afternoon trading.
Russia’s national currency fluctuated wildly earlier this month, forcing Russians to snap up imported goods ahead of expected price hikes.
On December 16, swiftly dubbed “Black Tuesday”, the currency crashed to unprecedented lows of 80 rubles to the dollar and 100 rubles to the euro.
To buttress the beleaguered currency, the government ordered state-controlled exporters to sell part of their foreign exchange holdings and the central bank raised interest rates to 17 percent from 10.5 percent.
Grinberg disparaged the authorities’ response as “band-aid solutions”.
“There is no systemic anti-crisis programme. They are not ready yet to react to this in a serious manner,” he said.
The central bank has warned of a contraction by up to 4.8 percent in 2015 based on current oil prices, with a recovery not expected until 2017.
Finance Minister Anton Siluanov said last week that the economy could shrink 4.0 percent next year based on oil prices of around $60 a barrel and predicted a budget deficit of 3.0 percent.
He said the government would have to further reduce expenses or tap into its reserves, noting that a planned 10 percent spending cut was not enough.