Russian Economy Ended The Quarter With A Decline
- 6.05.2025, 19:03
For the first time since 2022.
The bubble of the military economy, inflated in Russia by record military spending since the Soviet era, has begun to deflate, writes The Moscow Times.
In the first quarter of 2025, Russian GDP went into negative territory for the first time in three years, Raiffeisenbank analysts estimate on the basis of official statistics from the Ministry of Economic Development. Although the economy remained in plus year-on-year (by 1.7%), its size shrank by 0.3% against the previous quarter, which statistics have not seen once since April-June 2022. The chief economist of Bloomberg Economics estimates the quarterly decline even deeper - 0.6-0.8%. In monetary terms, adjusted for inflation, GDP at the end of March was about 500 billion rubles lower than in December, calculated Janis Kluge, a researcher at the German Institute for International Security Problems.
"The dynamics of GDP shows clear signs of deterioration," states Raiffeisenbank. According to the Ministry of Economic Development, the growth rate of industry has fallen more than 5 times - from 5.7% to 1.1%, the growth of retail sales has almost halved (from 5.5% to 3.2%), and wholesale trade has begun to decline for the first time since winter 2023 - by 2.1% per quarter.
"The situation is complicated by low oil prices," the bank adds: the cost of the Russian Urals grade fell from $70 in mid-January to $59 at the end of March, $54 in April and only $49 in early May. This will deprive the economy of $35 billion in foreign currency earnings and the budget of oil and gas taxes worth 2.6 trillion rubles, according to updated forecasts by the government and the Finance Ministry.
Preliminary data for April suggest that the cooling continues, Isakov points out. The PMI business activity index in industry is holding below 50 points, implying a decline in production, and in addition, freight transportation on the Russian Railways network is falling rapidly - by 9.7% year-on-year. This means that it is highly likely that the economy will slip into a technical recession (two consecutive quarters of decline) at the end of the second quarter, Isakov writes.
Beyond the military-industrial complex, Russian industry is already shrinking, Kluge points out. CMACP, a think tank close to the government, estimates that civilian production fell 0.8% in the first quarter, including a 1.1% decline in March. And its current volumes were the lowest since April 2023.
The decline hit civil engineering, electrical equipment production, construction materials output and iron and steel production. Food production sagged at a record rate since the first months of the war - by 0.7% per month in the first quarter, the CMACP writes.
Despite large-scale payments to military and contract workers, consumer spending is also stagnating, Raiffeisenbank points out: it was only 0.2% higher in the first quarter than a quarter earlier. "At the same time, growth was achieved only due to a recovery in purchases of non-food goods, the services and food segments fell," the bank's analysts wrote.
The Ministry of Economic Development still forecasts that Russian GDP will add 2.5% at the end of the year after growing above 4% for two previous years in a row. However, "the risks of lower growth rates this year are increasing," Raiffeisenbank wrote.
The government's plans to cut budget spending due to falling oil prices will obviously make it harder to achieve the optimistic growth figures for the Russian economy, which the MED retained in the base case forecast, warns Dmitri Polevoy, chief investment officer at Astra Asset Management.