The Russian economy is slow, new turmoil is set
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The Russian economy has slowed down sharply in recent months, according to the latest economic data, and can be at additional risk if the decline in oil prices and shocks in the world markets continue.
The growth of Russia, fueled by the cost of the three -year war in Ukraine, has exceeded 4% in the last two years, but labor shortages in many other sectors have contributed to the salaries and prices, which pushed inflation over 10%.
Russian economy: does not collapse but runs on the spot and suffocates inflation
In response, the central bank raised its basic interest rate to 21%, the highest level since the beginning of the century, provoking real howls from business leaders who say it suffocates investment. In the meantime, the price of Russia’s basic exports – oil.
- GDP growth decreased from 3% in January to 0.8% on an annual basis in February – the lowest indicator since March 2023.
- Transport, wholesale trade and mineral production have led, according to data published last week.
- Industrial production growth collapsed from 2.2% to 0.2%
Economists said that although February was one day shorter than last year, the signs of delay are obvious.
| « The deterioration in a significant proportion of industrial sectors is becoming sustainable. Signs of delay are permanently established, » Raiffeisenbank analysts say in a research message. They listed high interest rates, labor shortages, lack of production capacity outside the defense sector and continued pressure from Western sanctions. |
And the delay is expected to get worse by the price of oil, which has reached its lowest levels since April 2021, due to fears that the import duties of US President Donald Trump will cause a global recession.
The Kremlin binds falls in oil prices with the tense economic situation
Stagnation continues
Reports prepared by the Ministry of Economy and the Central Bank to meet with the government on February 4 – weeks before the news of the US large -scale duties to shock investors around the world – they have already noted lower oil prices, budget restrictions and the increase in bad corporate debt as risks to the economy.
The Ministry’s report says that it becomes increasingly likely to have a technical recession before inflation is mastered, and that the delay in lending and investment caused by high interest rates will slow down future growth.
| Recent data show that only sectors related to military production or participating in the replacement of sanctioned imports still develop. |
« The stagnation continued in the industry, » experts at the CMACP research center said, who advises the government.
- Earlier, it was said that sectors outside the military-industrial complex have been stagnant since mid-2023.
- The data also shows that consumer demand, which is a major factor in overall growth, has slowed, with retail sales increasing by only 2.2% in February after 5.4% in January.
- « This is another confirmation that although the income continues to grow, the real pursuit of consumption fades. We are starting to reach a plateau in consumer demand, » said Sofia Donets, chief economist at T-Bank.
In addition, while Russia saved new US import duties, Trump threatened to impose sanctions in order to further reduce Moscow’s ability to sell oil, unless he did more to achieve the truce in Ukraine, which he requested.
It looks like a recession
Sales of cars that have grown at a record rate in the last two years, when the market recovered from the withdrawal of Western brands in 2022, decreased by 25% on an annual basis in the first quarter and by 46% alone in March.
The railway transportation, observed by many economists, decreased by 7.2% in March and 6.1% in the first quarter, including loads of key export goods such as oil, cereals and metals.
- The S&P Index of Global Sales Managers showed a sharp shrinkage in the production sector to the lowest levels of 2022 against the background of a decline in production volumes and orders due to low internal and external demand.
- Economists in a Reuters poll last month predicted that GDP growth would slow down to 1.7% in 2025 from 4.1% in 2024.
- The Ministry of Economy predicted growth of 2.5% in 2025 compared to the estimated central bank’s estimate of 1-2%.
President Vladimir Putin called on his economic officials last month not to freeze with their strict monetary policy, the Russian economy, as if it were in a « cryotherapy camera », which many analysts have interpreted as a call to start an interest rate cycle.
« The delay is not death, but it is similar to a recession, » said Anton Tabach, an analyst at the EXPERT RA rating agency.
