Russia braces for recession as economic growth stalls

The Russian economy is slowing down. Rosstat reported on Friday that in the first quarter of 2025, GDP grew by only 1.4 percent year-over-year (YoY) – which is three times less than in the previous quarter (4.5 percent) and almost four times less than a year earlier (5.4 percent).

As The Moscow Times notes, the data from Rosstat (the Federal State Statistics Service of Russia) is worse than the preliminary estimates of the Ministry of Economic Development (1.7 percent) and forecasts by analysts surveyed by Bloomberg, who expected an average growth of 1.8 percent.

– Statistics indicate a sharp economic slowdown, assesses Yegor Susin, managing director of GPB Private Banking, quoted by The Moscow Times. The expert points out that although year-over-year GDP growth remains positive, the economy is shrinking quarterly – for the first time since 2022, GDP fell by 0.4 percent, as confirmed by Raiffeisenbank's data.

"GDP dynamics clearly show signs of deterioration", write analysts of the bank, quoted by The Moscow Times. The economy ministry calculates that the industrial growth rate decreased from 5.7 percent to 1.1 percent, and retail turnover slowed by almost half (from 5.5 percent to 3.2 percent). For the first time since winter 2023, wholesale trade also dropped – by 2.1 percent on a quarterly basis.

According to Alexander Isakov from Bloomberg Economics – quoted by The Moscow Times – preliminary data for April indicate that the economic cooling may deepen. The PMI for the industry fell below 50 points, suggesting a decrease in production, and Russian Railways freight transportation decreased by 9.7 percent YoY. The expert predicts that in the second quarter, Russia may fall into a technical recession.

Nevertheless, the Russian government maintains a GDP growth forecast of 2.5 percent by the end of the year. However, according to Susin, the real growth may be at the lower end of the Central Bank's forecasts – about 1 percent.

Among the main reasons for the slowdown, economists point to tightening monetary policy by the Central Bank, sanctions, supply chain issues, high inflation and falling oil prices. In April, Russian Urals oil – the dominant export product that fuels the Russian budget – cost CAD 72 per barrel, and in mid-May – just CAD 67, while the budget assumed a price of CAD 93. According to Argus, oil and gas revenues decreased by 10 percent YoY in the January–April period, and in May they could fall by as much as a third, estimates Reuters. The budget deficit has already reached CAD 50 billion and has almost tripled last year's figure.

Experts quoted by The Moscow Times warn that even a possible peace agreement with Ukraine, for which the US would ease sanctions, may have negative economic consequences. – A peace agreement will be a new shock to the economy, but a shock that can be managed, comments Aleksandra Prokopenko from the Carnegie Russia Eurasia Center, a regional branch of the American think tank Carnegie Endowment for International Peace, specializing in international affairs, foreign policy, and security.

According to her and other experts, economic growth has largely relied on war expenditures. – If the Kremlin wants to avoid economic collapse, it must maintain spending at the current level long after the war ends, claims Janis Kluge from the German Institute for International and Security Affairs.