Russia Economy in February 2015

Source: OPEC 2/26/2015, Location: Asia

The government announced a plan to spend about one trillion rubles to recapitalize banks through the issue of government bonds. The plan also includes supporting the state development bank and extending guarantees to finance investment projects and to support regional governments. The government also proposed 10% in public spending cuts in 2015 and 5% over the next two years. The ruble/dollar exchange rate depreciated 17.1% in January from the previous month. In the past three months, the currency depreciated more than 50% and since July 2014, nearly 68%. The inflation rate, on the other hand, increased to 15.0% in January 2015 from 11.4% in December 2014, mainly driven by higher food costs. This is the highest rate since August 2009. The central bank cut its benchmark interest rate to 15% in February from 17% in January, on expectations that inflation will fall in mid-2015. The unemployment rate increased for the fourth consecutive month to 5.3% in December 2014 from 5.2% in the previous month, reaching its highest level since April 2014. The number of unemployed people increased to 3.974 million from 3.930 million in November. A year earlier, the figure was 4.19 million.

The value of exports declined in November 2014 by the greatest amount in five years. Exports shrank 21.7% to $36.65 billion, the lowest value in nine months. November?s decline is the biggest since September 2009 when sales contracted an annual 33.4%. Imports declined 21.8% to $23.3 billion, the lowest since January 2014. Signs of a contraction in Russia?s manufacturing sector became more visible with the manufacturing PMI slumping to a 67-month low in January. The number of new businesses continued its decline while production fell for the first time in eight months. The survey also showed a sharp acceleration in output price inflation to the highest level in over a decade. The index posted 47.6 in January from 48.9 in December. Sanctions and a decline in export revenues are anticipated to hit GDP badly in 2015. Yet significantly lower imports together with efforts to substitute the imports that are expected in 2015 are likely to offset part of the impact. The GDP is forecast to contract 2.4% in 2015, although Russia?s economy ministry recently forecast an economic contraction of 3% this year. The way foreign reserves will be utilized in the coming months could also affect the country?s economic performance in either direction.


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