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Higher oil won’t save Russia from recession: poll

Five thousand rouble notes.
Stepan Popov | E+ | Getty Images
Five thousand rouble notes.

A recent rise in oil prices has lifted Russia's economic prospects but the economy remains headed for a sharp recession, a Reuters poll showed on Friday.

The poll of 15 analysts forecast that Russia's economy would contract by 3.3 percent this year, a less bearish prediction than in last month's poll, which foresaw a 4.1 percent decline.

Inflation was seen ending the year at 11.6 percent, again a slightly more optimistic prediction than a month ago, after reaching 16.4 percent in April.

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Analysts expected the central bank to keep cutting its key lending rate, by one percentage point to 11.5 percent at its next meeting on June 15 and by a further two points by year end.

The poll was published a day after the Economy Ministry updated its forecasts, predicting gross domestic product would contract by 2.8 percent in 2015.

The Reuters poll was also more bearish than the ministry when it came to 2016, predicting meager growth of 0.5 percent, below the official projection of a 2.3 percent expansion.

Bank of America Merrill Lynch economist Vladimir Osakovskiy said he had upgraded his 2015 growth outlook because the first quarter's 1.9 percent decline in GDP was smaller than expected.

He said the economy was likely to contract by around 3 percent year-on-year in each of the second and third quarters, as high inflation and borrowing costs constrain domestic demand and the government tightens spending.

"The outlook for annual GDP growth is still improving, despite the stronger recession in Q2 and Q3," he said. "Higher- than-expected oil prices should provide more support to corporate profits and investment demand this year."

Officials have struck a more optimistic note about the economy in recent weeks, with a partial recovery in international oil prices and February's peace deal in eastern Ukraine contributing to a stabilization of financial conditions.

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Economic data for April was poor, however, underscoring that Russia is still paying a heavy price for last year's oil price slide and Western sanctions related to the Ukraine conflict.

A fall in crude prices over the last week, mirrored by a retreat in the rouble, has highlighted Russia's vulnerability to fresh oil price weakness.

The poll's outlook for the Russian currency was also slightly more bullish than a month ago.

Respondents saw the rouble weakening to 54.67 per dollar in three months and to 55.00 in twelve months, compared with today's rate of around 52.55.