Five thousand Russian rouble banknotes pass through a money counting machine at a store in Moscow. Russia’s economy shrank 4.3% in the third quarter this year, the government said yesterday, as a recession caused by low oil prices and Western sanctions over Ukraine continued to take its toll.

AFP/Reuters
Moscow


Russia’s economy shrank 4.3% in the third quarter this year, the government said yesterday, as a recession caused by low oil prices and Western sanctions over Ukraine continued to take its toll.
Deputy economy minister Alexei Vedev told Russian news agencies that preliminary estimates put the year-on-year drop in gross domestic product for the third quarter at 4.3%, after contracting by 3.8% in September compared with 4.6% in August.
Officials in Russia are struggling to breathe life into the economy as the rouble has dropped precipitously in value and inflation and poverty have risen sharply.
Overall, the economy shrank 3.8% for the first nine months of the year, Vedev said.
In a sign of how tough the situation has become, official statistics released yesterday showed that consumer spending in the country is falling at its steepest rate in 15 years.
Year-on-year retail sales fell by 10.4% in September, the sharpest drop since 2000 according to RIA Novosti news agency, as Russians have seen their spending power stripped away by the crisis.
Statistics showed that real household incomes dropped by 9.7% in September on the back of a 9.8% plunge in August.
Russia’s government estimates that the economy will shrink by around 3.9% in 2015 before recovering slightly by 0.7% in 2016. The World Bank last month predicted the Russian economy would shrink by 3.8% in 2015 in its baseline scenario, a far steeper decline than an earlier forecast of a 2.7% contraction.
The downturn in 2015 could be as much as 4.3% if oil prices continue to drop and average around $50 dollars a barrel for the year, the bank said.
The bank ditched its earlier forecast of a gentle recovery with 0.7% growth in 2016. It now expects Russian economic output to decline 0.6% next year, with a recovery only appearing in 2017 with growth of 1.5%.
The poverty rate has climbed to 15.1%, representing 21.7mn people, in what the World Bank called a “troubling rise” exacerbated by increasing food prices.
In some regions, more than 35% of the population live in poverty, it said.
The International Monetary Fund estimates that Western sanctions imposed on Moscow over its meddling in Ukraine could cost Russia about 9% of GDP in the medium-term.
Ratings agency S&P said last week that the outlook for Russia’s recession-hit economy remains weak, predicting it would only expand by about 0.4% annually between 2015 and 2018. Meanwhile VTB, Russia’s second-biggest bank, yesterday launched an offer to buy back up to $1.9bn of 10 Eurobond issues in different currencies, the second time it has sought to buy back its bonds from the market this year.
The bank said in a statement on the Luxembourg Stock Exchange that it was willing to purchase up to $773mn of six dollar-denominated Eurobonds maturing in 2017 , 2018 , 2020 , 2022 and 2035.
It also offered to buy back A$421mn ($305.7mn) worth of 2017 bonds and bonds worth up to 748mn Swiss francs ($782.6mn) from three different issues .
The bank said the buyback offer reflected its liquidity position and objectives on managing its liabilities.
VTB has restricted access to international capital markets because it is under Western sanctions over the Ukraine conflict. It was loss-making in the first eight months of 2015.
In July, VTB bought back around $620mn of Eurobonds, following a similar offer to bondholders.
VTB said its latest buyback offer would expire on October 27 and that the final tender results would be announced on October 28.