Moscow: The Russian economy ministry slashed its economic forecast for 2015, announcing a contraction of 0.8 per cent due to the pressure of Western sanctions over the Ukraine crisis and falling oil prices.

“The current forecast is based on a drop in the GDP by 0.8 per cent in 2015 against the previous forecast of growth by 1.2 per cent,” deputy economy minister Alexei Vedev was quoted by Russian news agencies as saying.

The sharply revised outlook was caused by the ministry’s assumption that Western sanctions will continue through 2015, he said.

Real incomes of Russians will shrink by 2.8 per cent next year instead of increasing by 0.4 per cent, he said, saying the revision was due to inflation and slowing economic activity.

He said the ministry expects the Russian economy to reach bottom in mid-2015 and begin a rebound on rising oil prices on which the Russian budget overwhelmingly depends.

“We have a feeling that there will be a correction (of oil price), we believe we will return to the range of 85-95 dollars a barrel,” he said.

Russia’s economy has been hit by plunging oil prices which fell to five-year lows on Monday before stabilising early Tuesday with US benchmark West Texas Intermediate for January delivery at $68.50, while Brent crude for January was at $71.75.

Other factors weighing on growth are the Western sanctions imposed over Moscow’s meddling in the pro-Russian separatist uprising in eastern Ukraine, and a record drop in the value of the rouble.

The Russian currency experienced its worst slump since 1998 on Monday. After rallying slightly Tuesday morning it lost most of its gains and was trading around 52.4 to the dollar and 65.3 to the euro shortly after Vedev’s remarks.

Sped up by the rouble’s falling value, inflation by the end of 2014 will be 9 per cent, Vedev said, up from the previous estimate of 7.5 per cent.

Russia’s growth has slowed dramatically in recent years, the rate falling to 1.3 per cent in 2013 compared with 3.4 per cent the previous year.