Russia reveals recession concerns

<p>The Russian government has warned of falling into recession in 2015.</p>

Russia could fall into recession next year, that is the warning from the country's government.

Ministers at Russia's economic development ministry estimate the economy will contract by 0.8 per cent in 2015, this is a significant change from previous predictions of 1.2 per cent growth in the year. Russia has been hit hard by falling oil prices, while also being hampered by Western sanctions imposed for the country's role in the conflict in eastern Ukraine.

On Monday (December 1st), the rouble suffered its biggest one-day decline since 1998 when it fell nine per cent against the dollar. The country relies heavily on revenues from oil exports but as prices continue to fall it is impacting significantly on Russia's economy. As the rouble fell, Brent crude hit $67.53 (£43.16), a five-year low, while US crude was down to $66.34 a barrel.

Russia is sensitive to price movements in the oil markets and was strongly opposed to a potential decision by the Organization of Petroleum Exporting Countries (Opec) to reduce production levels. Despite not being a member of Opec, Russia confirmed that it would not be cutting its output but Opec decided to make the same decision.

In what was a first admission by the government that the economy will contract, Alexi Vedev, deputy prime minister, said: "The current prognosis is based on a drop in GDP by 0.8 per cent in 2015, against the previous prognosis of growth by 1.2 per cent."

The price of the rouble has been sliding since the turn of the year and has so far dropped by 40 per cent against the dollar. Russia's finance ministry stated that there was still the possibility of spending over 500 billion roubles (£5.8 billion) from the budgets' Reserve Fund over the next 12 months to tackle the threat of recession.

Find up to date information on the FTSE 100 and spread betting strategies at City Index

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.