Russia Economy Contracted by 3.7% in 2015

According to preliminary figures published by Russia’s statistics service, the country’s economy contracted by 3.7% in 2015.

Retail sales plunged by 10% and capital investment fell by 8.4% in the economy’s worst performance since 2009.

In contrast, Russian GDP increased by 0.6% in 2014.

Russia’s economy has been hit hard by the extraordinary collapse in oil prices, which have fallen by 70% in the past 15 months.

Sanctions imposed by the West after Russia annexed Ukraine’s Crimea region in 2014 have also had an impact.

PM Dmitry Medvedev warned earlier this month that the fall could force Russia’s 2016 budget to be revised.

President Vladimir Putin said in December that the budget had been calculated based on oil at $50 a barrel. Oil is trading at just over $30 a barrel.

The state-controlled media blames the crisis, principally, on low oil prices and, to a lesser extent, on western sanctions.

In 15 years that Vladimir Putin has ruled Russia as president or prime minister, Russia failed to prepare for the possibility of low oil prices and did little to diversify its economy and reduce its reliance on energy exports.

Russian citizens are increasingly concerned. Inflation is rising, so is the fear of job losses. Meanwhile, real incomes in Russia are falling and social benefits are being cut.

Earlier this month senior citizens blocked streets in Sochi and Krasnodar to protest against the scrapping of free travel passes for pensioners. People power persuaded the local authorities to reverse the decision. The longer Russia’s economic woes continue, the greater the likelihood that social protest here will spread.

Taxes from oil and gas generate about half the Russian government’s revenue.

The ruble fell to record lows against the US dollar last week, before regaining some ground as oil prices recovered slightly.

The currency was down more than 1% on January 25 at 78.87 after oil prices fell about 3%.

Economy minister Alexei Ulyukayev said he expected the Russian central bank to leave interest rates on hold at 11%.

Elvira Nabiullina, the head of the central bank, said last week that authorities had “all the means” needed to keep the economy stable.

Unemployment in Russia was steady at 5.8% in December, meaning that 4.4 million people were out of work, and real wages fell by 10%.

Despite the gloomy economic news, McDonald’s said on January 25 it planned to open more than 60 restaurants in Russia in 2016.

Khamzat Khasbulatov, chief executive of McDonald’s Russia, said sanctions and the weak ruble had forced the fast food giant to make “serious adjustments” to its business model, but focusing on local suppliers and affordable menus had proved successful.