Russian economy shrinks 2pc

MOSCOW: Prime Minister Dmitry Medvedev on Tuesday estimated that the Russian economy shrank by 2 per cent in the hrst quarter due to sanctions pressure and low oil prices.

If confirmed, that would be the first quarterly contraction since 2009.

Medvedev warned lawmakers the situation could worsen further, in contrast to President Vladimir Putin, who said last week the worst of the economic crisis had passed.

`Negative trends continue this year` following the crisis of the rouble national currency in late 2014, said Medvedev while presenting a government report to parliament.

`Between January and March, GDP contracted about 2pc.` Last year the Russian rouble collapsed, sending inflation into double digits.

Prices of food skyrocketed, exacerbated by Russia`s embargo on food imports from the European Union.

On Friday the state statistics service said that in March foreign trade was down more than 26pc, while real wages fell 9.3pc and inflation picked up by 16.9pc compared with the same period last year.Russia`s central bank predicted the economy could shrink by as much as four percent in 2015 if oil remains around $50 per barrel.

The crunch has forced the government to dip heavily into its reserves and publicly ponder the sensitive issue of raising the retirement age for the first time since the 1930s.

Analysts with the Higher School of Economics last week said that the shrinl(ing of Russians` purchasing power will continue for at least a year, accompanied by growing unemployment and banlcruptcies and a decline in social welfare from budget cuts to health and education.

He said the crisis robbed Russia of billions of euros, but argued that since it was brought on by Western sanctions imposed over Russia`s annexation of Crimea, it could not be avoided. Russia last March annexed Ukraine`s Black Sea peninsula after deploying special forces there.

`Adding on Crimea affected our economy,` Medvedev said. `Experts say that the overall damage to Russia was 25bn euros, that is 1.5pc of the GDP, and in 2015 it could be several times thatí.

Published in Dawn