Russian economy shrinks most since '09 as oil sinks

The Rusal Krasnoyarsk aluminium smelter. The economy of the world's largest energy exporter is facing a second year of contraction.

Russia's economy, facing renewed pressure from plunges in energy prices and the ruble, contracted the most since 2009 last year on oil's decline and sanctions over the conflict in Ukraine that curbed access to international financing.
Gross domestic product fell 3.7 per cent after growth of 0.6 per cent in 2014, the Federal Statistics Service said on Monday on its website, citing preliminary estimates. Economists in a Bloomberg survey forecast a 3.8 per cent drop. A separate release of consumer data for December showed spending continued to decline as real wages and disposable incomes fell further.
"The economy's going through big adjustments - it's still addicted to oil," Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail. "The weak rouble and import substitution will continue to support local production, although on a moderate path. It's a long and painful journey to recovery."
The economy of the world's largest energy exporter is facing a second year of contraction after crude prices resumed their slump at the start of 2016, sending the ruble tumbling to a record. Monetary-policy makers, meeting Friday to discuss interest rates, have limited room to trim borrowing costs with inflation at more than three times their medium-term target. The central bank has held its benchmark at 11 per cent for three meetings.
The rouble has lost more than seven per cent against the dollar this year, the worst performer among 24 emerging-market currencies tracked by Bloomberg. Oil has fallen about 15 per cent in 2016 as volatility in global markets adds to concern over swollen US stockpiles and the prospect of increased Iranian exports.
Bank of Russia Governor Elvira Nabiullina has said the regulator is 'vigilantly' monitoring the situation and is ready to step in. The central bank hasn't sold foreign currency since late 2014 after shifting to a free float of the ruble. Officials have warned that Russia must cut spending to avoid running down the reserves it built up when oil prices were higher.
Russian consumers are suffering amid the recession, with retail sales diving 15.3 per cent from a year earlier in December, matching the median forecast in a survey of economists. Wages adjusted for inflation plummeted 10 per cent, more than analysts predicted, while disposable incomes fell 0.7 per cent, less than the 5.6 per cent decline seen by economists.
Inflation is making the situation worse. While consumer-price growth slowed in December, it's still at 12.9 per cent, compared with the central bank's goal of four per cent by the end of 2017. And there are pressures that risk pushing inflation higher again, including the ruble's latest losses and bans on Turkish products such as fruit and vegetables after Turkey's military shot down a Russian warplane near the Syrian border.
While unemployment was a rare bright spot last month, staying at 5.8 per cent, fixed-capital investment shrank 8.7 per cent, extending a slump that began two years ago. That's the longest period of decline since Bloomberg began compiling the data in 1995.