Russia's economy falters: Recession, deficit, and low oil prices
The Russian economy is experiencing a notable slowdown. GDP in the first quarter increased by only 1.4 per cent, which is three times less than at the end of 2024. Economists are warning of a recession, the budget is sliding into deficit, and low oil prices are severely impacting the Kremlin's finances, according to The Moscow Times.
The Russian economy is slowing down. Rosstat reported on Friday that in the first quarter of 2025, GDP grew by only 1.4 per cent year-over-year (YoY)—this is three times less than in the previous quarter (4.5 per cent) and almost four times less than a year earlier (5.4 per cent).
The Moscow Times notes that the data from the Russian statistical office (Rosstat—the Federal State Statistics Service) is worse than the preliminary estimates by the Ministry of Economic Development (1.7 per cent) and forecasts by analysts surveyed by Bloomberg, who anticipated an average growth of 1.8 per cent.
Recession looming for Russia
– Statistics indicate a sharp economic slowdown – assesses Yegor Susin, managing director of GPB Private Banking, as quoted by The Moscow Times. The expert notes that although the year-on-year GDP growth remains positive, the economy is contracting quarter-on-quarter— for the first time since 2022, the GDP fell by 0.4 per cent, as confirmed by Raiffeisenbank's data.
"GDP dynamics clearly show signs of deterioration" – write analysts of the bank, as quoted by The Moscow Times. The economy ministry calculates that the industrial growth rate decreased from 5.7 per cent to 1.1 per cent, and retail turnover slowed by almost half (from 5.5 per cent to 3.2 per cent). For the first time since winter 2023, wholesale trade also dropped—by 2.1 per cent 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 worsen. The PMI for the industry fell below 50 points, suggesting a decrease in production, and Russian Railways freight transportation decreased by 9.7 per cent 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 per cent 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—around 1 per cent.
Budget under pressure, war fuels growth
Among the main reasons for the slowdown, economists point to the 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 approximately £43 per barrel, and in mid-May—around £40, while the budget assumed a price of about £57. According to Argus, oil and gas revenues decreased by 10 per cent YoY in the January–April period, and in May they might fall by as much as a third—estimates Reuters. The budget deficit has already reached 3.23 trillion roubles 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 might ease sanctions, could have negative economic consequences. – A peace agreement will be a new shock to the economy, but a manageable one – comments Aleksandra Prokopenko from the Carnegie Russia Eurasia Center, a regional branch of the American think tank Carnegie Endowment for International Peace, specialising 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 – asserts Janis Kluge from the German Institute for International and Security Affairs.
