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Spokane, Washington  Est. May 19, 1883

Russia sees recession in forecast for 2015

Oil prices and sanctions undermine stability

Associated Press

MOSCOW – The Russian government has acknowledged that the country will fall into recession next year, battered by the combination of Western sanctions and a plunge in the price of its oil exports.

The news caused the stock market to drop and pushed the ruble to a fresh record low against the dollar.

The economic development ministry on Tuesday revised its GDP forecast for 2015 from growth of 1.2 percent to a drop of 0.8 percent. Russian households are expected to take a hit, with disposable income projected to decline by 2.8 percent against the previously expected 0.4 percent growth.

Russia’s economic outlook is at the mercy of the global market for oil, a key export that finances the bulk of the state budget. Sanctions over Moscow’s role in eastern Ukraine are making things worse, hurting Russian banks and investment sentiment in particular.

The national currency, the ruble, has dropped by more than 40 percent this year as the economic troubles mounted. That in turn risks spawning more problems, such as a spike in inflation that would pinch consumers.

While Russia’s troubles could do some economic damage to Europe, they are unlikely to have much impact on the U.S. economy, the world’s largest. Russia is the 28th-biggest market for the United States, absorbing $11.1 billion worth of U.S. goods last year.

“Russia-U.S. trade is hardly large,” said Eric Lascelles, chief economist at RBC Global Asset Management. “I don’t think we should be worried” about the impact of a Russian recession on U.S. exports.

In fact, the U.S. is benefiting from the lower oil prices that are driving Russia toward recession, and the money being pulled out of Russia is being pumped into U.S. and European financial markets, helping to keep interest rates low, Lascelles said.

Mark Zandi, chief economist at Moody’s Analytics, agreed, saying: “I don’t think there’s any direct economic impact” on the United States. However, he noted that Russian President Vladimir Putin could respond to the economic troubles by trying to divert the Russian public’s attention with even more belligerent policies toward Ukraine and the West, raising tensions and perhaps rattling financial markets.

Russia’s economic stability is important for the region. It is a major trading partner for Western Europe, selling raw materials and oil and gas to the West and importing consumer goods and foodstuffs. European agricultural producers reported big losses following the Kremlin’s ban on some imports. A weaker economy and a weaker ruble would also mean that fewer Russians will be traveling abroad and spending their money there.

Russia’s public finances may withstand some short-term turmoil – the government has a solid balance sheet, extremely low sovereign debt and sizeable reserves in foreign currencies.