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By Bloomberg

The ruble fell by the most in almost two weeks as a report showed Russia’s economy contracted for the first time in five years as the world’s biggest energy exporter slides toward recession.

Gross domestic product shrank 0.5 percent in November from a year earlier, the Economy Ministry in Moscow said on its website. Russian manufacturing output declined this month by the most since May, according to a separate report from HSBC Holdings Plc and Markit Economics. With oil prices at $60 a barrel, GDP may slump about 4 percent next year, according to Finance Minister Anton Siluanov.

Russia’s currency had its biggest advance in 16 years last week spurred by a government directive that exporters should convert foreign-exchange revenue into rubles and corporate demand to meet tax deadlines. It remains 41 percent weaker this year, the most since 1998, as crude oil, Russia’s main export earner, headed for its worst year since 2008, and sanctions cut the nation off from Western financial markets.

“The ruble is moving back to the equilibrium price,” Vladimir Osakovskiy, the chief economist for Russia and the Commonwealth of Independent States at Bank of America Corp. in Moscow, said by e-mail. “Oil is so far failing to cling to the level above $60 per barrel, while selling of foreign currency in order to pay taxes is over.”

The ruble dropped as much as 8.5 percent, the biggest decline since Dec. 16, before trading 3.6 percent weaker at 55.99 per dollar at 3:19 p.m. in Moscow.

Exporters Gain

Brent, the oil grade traders use to price Russia’s main export blend, strengthened 1.6 percent to $60.40 a barrel, trimming its year-to-date slump to 46 percent.

The Micex Index of equities rose 2.3 percent to a one-week high as the declining ruble boosted the local-currency value of exports. OAO Norilsk Nickel jumped 7 percent, the most since Dec. 16, while OAO Lukoil, Russia’s largest oil producer, added 2.7 percent. OAO Magnit, the nation’s biggest retailer, surged a record 13 percent before trading 3.2 percent higher.

“Magnit is the beneficiary in the downshifting of Russian consumption from premium retail,” Aleksei Belkin, who helps manage about $4 billion at Kapital Asset Management LLC, said by e-mail. “It can probably offset the weaker ruble better than its competition by raising prices.”

Russia’s Manufacturing Purchasing Manager’s Index fell to 48.9 in December from 51.7 in November, according to HSBC and Markit. A reading below 50 signals contraction.

“A sharp slowdown in manufacturing had the main negative effect on GDP dynamics in November,” the ministry said in a statement accompanying the data release. Negative trends continued in construction, wholesale trade and agriculture, it said.

Import Substitution

Consumer goods producers stopped benefiting from the retail sales growth, suggesting that import substitution from the weaker ruble may be “problematic” and will take time if it happens at all, Alexander Morozov, HSBC’s chief economist for Russia, the Commonwealth of Independent States and the Baltics, said today.

Standard & Poor’s said Dec. 23 there’s at least a 50 percent chance it will cut the sovereign’s credit rating to below investment grade within 90 days, citing “a rapid deterioration of Russia’s monetary flexibility and the impact of the weakening economy on its financial system.”

The economy of the world’s largest energy exporter is set to shrink 1.4 percent next year, the average of 46 analyst estimates compiled by Bloomberg show.

Average trading volume in the ruble was about 30 percent below the 12-month average last week, according to data compiled by Bloomberg. Some traders are closing exposure to Russia before the holiday, according to Osakovskiy. The country’s markets will close for an annual New Year’s break from Dec. 31 through Jan. 4 and for a Christmas holiday on Jan. 7.