Economic growth continues to decelerate

RUSSIA ECONOMICS - In Brief 03 Oct 2025 by Evgeny Gavrilenkov

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Rosstat reported that the output of the five basic sectors (industry, agriculture, construction, transportation, and trade) showed lackluster performance with just 0.2% y-o-y growth in August and 0.8% in the first eight months of 2025. Many economic segments were sluggish during this period, though retail sales rose over 2.0% y-o-y (2.8% in August alone and 2.2% in 8M25). Smaller sectors like consumer services (hotels, restaurants, etc.) grew much faster. In contrast, wholesale trade shrank y-o-y by 5.3% in August and 3.7% in 8M25, indicating a continued decline in foreign trade. Cargo transportation fell 0.9% y-o-y in 8M25, while passenger transportation dropped 0.6% y-o-y, with both segments seeing steeper declines in August. Construction rose 3.5% y-o-y in 8M25 but recorded minimal growth in August at 0.1% y-o-y. The financial sector seems to be the main winner in the current climate, growing by 14.3% y-o-y in the first half of 2025. High interest rates boosted bank revenues even though consumer credit saw little growth. By September 1, household credit had only risen by 0.6% since the start of the year, following a 0.8% m-o-m increase in August. The economy continues to struggle with high interest rates and an overly strong ruble. High rates were driven by excessive government spending, which was seen as inflationary, prompting the CBR to raise rates. In a way, the government partially squeezed out other sectors. Since the start of the year, the ruble has appreciated in real terms by 29.6% against the dollar and 25.4% against the currency basket of Russia's main trade partners, which is not favorable for domestic manufacturing. The 2026 budget (an issue we discusse...