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A day after his deputy said Russia’s economy is showing signs of recovery, Russian Prime Minister Dmitry Medvedev followed up with word that low oil prices and Western sanctions have led to a 2 percent drop in his country’s gross domestic product (GDP) in the first quarter of this year.
On April 20, Deputy Prime Minister Arkady Dvorkovich told Bloomberg TV at the World Economic Forum on East Asia in Jakarta, that Russia’s aforementioned recovery is due, at least in part, to its reduced dependence on oil.
“Oil prices are not as important to the Russian economy as before,” Dvorkovich said. “As far as oil prices are concerned, we can live with different prices and still grow.”
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In fact, Dvorkovich said, the price of oil has stabilized recently, and as a result, “[we] look at signs of recovery in the first and second quarters of the year already. Manufacturing can still go lower, but overall financial markets, our banking system and the economy are stabilizing.”
Nevertheless, the Central Bank of Russia says it expects the country’s economy, which grew by only 0.6 percent last year, to contract by up to 4 percent in 2015 because of lower oil prices and the sanctions. Anticipating that, Standard & Poor’s cut Russia’s credit rating to junk in January.
Now it’s no longer a matter of anticipation. On April 21, the day after Dvorkovich spoke, his boss, Prime Minister Dmitri Medvedev, told the State Duma, Russia’s lower house of parliament, that the country’s GDP already had dropped by 2 percent in the first quarter of this year – the first contraction since 2009.
Medvedev said the country’s economic decline was “most acute” in the period immediately before and after the 2015 New Year.
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“For the first time in Russia’s history after the fall of the USSR, we have fallen under the consequences of two external shocks immediately: the sharp decline in oil prices and unjustified serious sanctions,” Medvedev said. “Our country has never run into such a collection of challenges at the same time.”
The prime minister said the problem was made worse by large-scale capital flight from Russia and the lowering of its credit rating. Altogether, he said, the economic bad news will continue for the country “throughout this year.” Besides the GDP drop, he said, industrial production fell by 0.4 percent and investment has fallen even further, though he did not quantify it.
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Medvedev did seek to quantify the losses directly due to the sanctions, most of them imposed by the European Union and the United States. “The losses that our economy had sustained are significant, and we are not going to hide them,” he said. “According to some foreign experts, Russia has already lost 25 billion euros [$26.7 billion, or 1.5 percent of GDP]. And it may multiply in 2015.”
The Western sanctions, meant to punish Russia for its suspected role in the Ukraine conflict, have severed the country’s access to international markets and accelerated a flight of capital. As a result, Moscow has been forced to reduce government spending and raise interest rates. Such actions have stabilized the economy somewhat, but Medvedev warned legislators not to harbor any “illusions.”
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com