Russian economy slows down sharply: analysis of recent data
9 April 08:36
According to recently published economic indicators, the Russian economy has slowed significantly in recent months. Experts warn of further risks if oil prices continue to fall and global market turbulence continues, Komersant ukrainskyi reports citing Reuters.
Russia’s economic growth, fueled by the cost of the three-year war against Ukraine, has exceeded 4% for the past two years. However, labor shortages in many other sectors have contributed to a spiral in wages and prices, pushing inflation above 10%.
In response, the Central Bank of Russia raised its key interest rate to 21%, the highest level since the early 2000s. This decision has sparked outrage among business leaders, who argue that it is discouraging investment. At the same time, the price of Russia’s main export commodity, oil, is declining.
Growth is slowing down
According to data released last week, GDP growth fell to 0.8% year-on-year in February, down from 3% in January, the lowest since March 2023. The largest declines were observed in transportation, wholesale trade, and mining.
Industrial production growth fell from 2.2% to 0.2%.
Economists note that even though February was one day shorter than last year, signs of a slowdown are evident.
“The deterioration in many industrial sectors is becoming permanent. Signs of a slowdown are taking hold,”
– Raiffeisenbank analysts said in a research note.
They cited high interest rates, labor shortages, a lack of production capacity outside the defense sector, and the ongoing pressure of Western sanctions as the main reasons.
The slowdown has also been exacerbated by falling oil prices, which hit their lowest level since April 2021 on fears that US President Donald Trump ‘s import tariffs will trigger a global recession.
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Stagnation continues
Reports prepared by the Ministry of Economy and the Central Bank for a meeting with the government on February 4 – two months before the news of the massive US tariffs shocked investors around the world – had already warned of risks to the economy from lower oil prices, budget constraints, and rising corporate debt.
The ministry’s report said that a technical recession is becoming more likely before inflation is brought under control, and that slower lending and investment due to high interest rates will slow future growth.
According to Reuters, the latest data show that only sectors related to military production or involved in replacing sanctioned imports continue to grow.
“There is a prolonged stagnation in industry,”
– said experts from the CIACP think tank, which advises the government.
Earlier, they noted that sectors outside the military-industrial complex have been stagnant since mid-2023.
The data also showed that consumer demand, which had been a major driver of overall growth, slowed, with retail sales growing by only 2.2% in February, down from 5.4% in January.
“This is further evidence that while incomes continue to grow, the real consumption stimulus is fading. We are starting to reach a plateau in consumer demand,”
– said Sofia Donets, chief economist at T-Bank.
In addition, although Russia has avoided new US import tariffs, Trump is threatening to impose sanctions aimed at further restricting Moscow’s ability to sell oil unless it makes greater efforts to bring about a ceasefire in Ukraine.
Close to recession
Car sales, which grew at record rates over the past two years as the market recovered from the exit of Western brands in 2022, dropped 25% yoy in the first quarter and 46% in March alone.
Rail freight, which is tracked by many economists, was down 7.2% in March and 6.1% in the first quarter, including the loading of key export commodities such as oil, grain, and metals.
The S&P Global Purchasing Managers’ Index showed a sharp contraction in the manufacturing sector in March to 2022 lows, amid declines in production and orders due to weak domestic and foreign demand.
Economists in a Reuters poll last month predicted that GDP growth will slow to 1.7% in 2025, down from 4.1% in 2024. The Economy Ministry predicts growth for 2025 at 2.5%, while the Central Bank foresees 1-2%.
Russian President Vladimir Putin last month called on his economic officials not to freeze the Russian economy “as if it were in a cryotherapy chamber” with his tight monetary policy, which many analysts interpreted as a call to start a cycle of easing.
