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Russia's economy shrinks by 4.6% on low oil prices, sanctions

Russia's economy shrinks by 4.6% on low oil prices, sanctions
An exchange rate sign along a busy Moscow thoroughfare shows the Russian ruble had fallen Monday to 64.10 to the U.S. dollar -- a decline of at least 43% over the last year as slumping oil prices and sanctions hit the Russian economy. (Alexander Zemlianichenko / Associated Press)

Russia's economy shrank by 4.6% in the second quarter of this year, posting the worst performance since the crippling recession of 2009, the state statistics agency reported Monday.

Russian consumers have also been hit by the eroding value of the ruble. The currency has dropped to 64 to the U.S. dollar, boosting inflation to 15.6% in July and propelling a decline in buying power with its depreciation of 43% over the last year.

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The most damaging influence on the Russian economy is attributed to the slump in oil prices, which are roughly half what they were a year ago and down 20% in just the last six weeks. Russia counts on oil and gas sales to generate more than half of its national budget revenue.

U.S. and European sanctions imposed more than a year ago in punishment for Russia's seizure and annexation of Ukraine's Crimea region also have taken their toll. And Russia's retaliatory ban on imports of European Union food products has spread the pain to many of the 28 member countries that enjoyed brisk trade with Moscow before the measures were invoked.

Last week the Russian government launched a crackdown on illegally imported produce. Bulldozers were deployed on the orders of officials from the government food purity agency to crush crates of fruit and cheese brought in by rogue traders from countries subject to the Russian import ban.

The United States and the European Union voted in June to extend sanctions on Russia through January 2016 in hopes of pressuring the Kremlin to use its influence with pro-Russia separatists waging war against Ukrainian forces. That 16-month-old conflict has taken at least 6,500 lives and driven tens of thousands of people from their homes in the embattled eastern regions.

Russia's second-quarter year-over-year gross domestic product contraction was more than twice the rate of the first quarter, when the economy shrank by 2.2% compared with the first quarter of 2014. It also exceeded the Russian Economy Ministry's forecast of 4.4% economic decline this year.

Car sales in Russia are projected to drop by 36% this year, a pace already evident and prompting mass layoffs at production and sales facilities, the Assn. of European Businesses reported last month. Until this year, Russia was among the top 10 automobile markets in the world, the Russian business daily Vedemosti said last week when it reported national sales volume now ranked 12th.

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