According to Alexei Vedev, the Russian deputy economy minister, the Russian government has invalidated its earlier forecast of 1.2% GDP growth for 2014 which is now expected to be around -0.8%, resulting in a sharp difference of 2 points. “We now assume that sanctions will remain in place throughout the whole of 2015. This for us means closed capital markets for the majority of Russian companies and banks, as well as unfavorable conditions for investment – uncertainty and a lack of security,” Vedev explained.
Russia is therefore likely to move into recession next year due to lower commodity prices – oil, gas – and mounting pressure from western sanctions over Ukraine. So far this year, the RUB has lost more than 40% against the USD. “The fall in oil prices has caused a significant weakening of the ruble’s exchange rate, which gives rather strong inflationary effect. (…) Higher inflationary pressure reduces the purchasing power of the population, which reduces consumption,” Vedev added.
In the end, will this erode Putin’s record popularity within the Russian people? “This may rather fuel nationalist reactions,” Cyceon correspondents said. “The stronger the western sanctions, the closer Russia to China, with the long-term consequences that come with it.”