Russia’s economy may shrink the most next year since 2009 if oil averages $60 a barrel under a “stress scenario,” the central bank said, underscoring the toll exacted by plunging crude prices.
With oil prices remaining at that level until the end of 2017, gross domestic product will probably shrink 4.5 percent to 4.7 percent in 2015 and 0.9 percent to 1.1 percent in 2016, the Bank of Russia said in a report issued today. The ruble extended its decline after the release, tumbling more than 10 percent percent against the dollar.
The assessment signals intensifying concern over the slump in crude prices compounding the impact from sanctions imposed over the conflict in Ukraine and the country’s biggest currency crisis since 1998. Inflation may quicken to 10.1 percent from a year earlier this month and reach 11.5 percent next quarter before it begins to decelerate, according to the central bank’s base case.
“An inflation target of 4 percent is achievable by the end of 2017, even if external factors remain unfavorable,” First Deputy Governor Ksenia Yudaeva said in a statement. “This will require monetary policy to remain tight in 2015.”
Consumer spending may contract 6.3 percent to 6.5 percent next year, while fixed-capital investment will probably shrink 10.1 percent to 10.3 percent, according to the stress scenario.
The central bank, led by Governor Elvira Nabiullina, has so far failed to reverse the currency plunge even after spending a fifth of its international reserves and raising its key interest rate five times since March.
The ruble, which has depreciated almost 49 percent this year against the dollar, is the worst performer among more than 170 currencies tracked by Bloomberg. The currency plummeted more than 10 percent to 64.4455 against the dollar as of 9:32 p.m. in Moscow.
Net capital outflow may reach $134 billion this year, the highest annual total since 2008, when $133.6 billion left the country, according to central bank data. It may decline to $115 billion to $120 billion next year, according to the report.
The central bank has increased its key rate to 10.5 percent from 9.5 percent when it last reviewed borrowing costs on Dec. 11. It wasn’t trying to use a sharp rate move to sway the currency market, Nabiullina said after last week’s policy meeting.
A large rate increase “would have increased recession risk,” she said, reiterating inflation remains the priority for the regulator. “We’re assessing risks for the economy. Our economy isn’t in the best condition.”