Finance minister warns that Russia is on course for a sharp recession as oil slump hammers sickly rouble

The economy is slowing sharply as Western sanctions over the Ukraine crisis deter foreign investment and spur capital flight, and as a slump in oil prices severely reduces Russia’s export revenues and pummels the rouble.

The government has taken steps to support key banks and address the deepening currency crisis in the past week, including a sharp and unexpected interest rate hike, but analysts are pessimistic on the outlook for both the economy and the rouble.

Finance Minister Anton Siluanov said the economy could shrink by 4 per cent in 2015, its first contraction since 2009, if oil prices averaged their current level of $60 a barrel. Mr Siluanov also said the country would run a budget deficit of more than 3 per cent next year if the oil price did not rise.

“Next year we will, without doubt, have to bring the Reserve Fund into play,” he said, referring to one of Russia’s two rainy-day funds intended to support the economy at times of crisis.

Russian authorities yesterday scaled up rescue funds for Trust Bank, saying they would provide up to $2.4bn in loans to bail out the mid-sized lender. The authorities will also provide additional capital to the country’s second-largest bank, VTB, and fellow state lender Gazprombank.

Standard & Poor’s said this week it could downgrade Russia’s credit rating to junk.