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Russian GDP shrinks 4.1% in Q3; fall rate eases

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(Credit: MoneyTimes) Russian Prime Minister Dmitry Medvedev had estimated that the Western sanctions imposed on Russia are expected to cost $100 billion.Russian Prime Minister Dmitry Medvedev
November 16
11:59 PM 2015

The Russian economy slipped 4.1 percent during the third quarter as against the drop of 4.6 percent in the second quarter. The consecutive third quarter of contraction signals recessionary situation in the Russian economy.

The Western sanctions coupled with lower oil prices had been impacting the Russian economy in a more negative way for about two years.

Russian Prime Minister Dmitry Medvedev had estimated that the Western sanctions imposed on Russia are expected to cost $100 billion.

The oil and gas sector contributes most of the revenues to the Russian government. The fall of oil price over 60 percent from mid-2014 is making the economy worse off for the Brics (Brazil, Russia, India, China and South Africa) nations. 

Some economists still hold an optimistic view about the Russian economy.

In CNN, Liza Ermolenko, an emerging markets economist at Capital Economics in London relayed that the worst of the recession appears to now be over. "Monthly activity data suggest that Q3's improvement was driven by the industrial sector", she said.

International Monetary Fund (IMF) forecasts that Russian GDP may shrink by 3.8 percent for 2015 and 0.6 percent in 2016. On the other hand, inflation is soaring and expected to reach 15 percent this year may average 16 percent for 2016. The rising inflation is eroding the purchasing power of citizens.

The Western sanctions imposed on Russia for its controversial role in Ukraine's civil war.

The World Bank has increased its forecast on Russian economy fall rate from previous 2.7 percent to 3.8 percent for 2015 year. The World Bank further said that if oil price continues for longer period, then Russian economy may shrink 4.3 percent.

Going by the Central Bank's views on ailing economy, the bleak situation may not recover in the short term. The Central Bank of Russia is concerned over the low level of investment activity. 

In its latest report, Central Bank of Russia declares that the lowest point of deceleration of investment activity has not yet passed.

"According to our estimations, the monthly increase in investment in fixed capital (adjusted for seasonal factors in September) was negative at -0.4 percent (month-on-month), which does not yet show the beginning of the hike of investment activity", it noted.

However, Russian industrialists say that the economy has not bottomed out yet. The recent remarks made by Russian billionaire Oleg Deripaska indicate the under the current bleak situation in the ailing Russian economy.

Deripaska is President of the world's second largest aluminum producer Rusal. He said the worst is yet to come.

"Although not for at least another three quarters, there's still a crisis and we can't see the bottom yet and there are a lot of issues to be resolved", he said.

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