The Russian economy decelerates amid unclear prospects for the rest of the year

RUSSIA ECONOMICS - In Brief 01 May 2025 by Evgeny Gavrilenkov

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Rosstat reported that in 1Q25, industrial output grew by a mere 1.1% y-o-y as in March alone it was up by 0.8% y-o-y. Seasonally adjusted industrial output contracted last month by 0.7% m-o-m. The mining segment was down y-o-y by 3.7% and 4.1% in 1Q25 and March alone. This contraction stemmed mainly from the unimpressive performance of the oil-and-gas segment which was down by 11.0% y-o-y in 1Q25. In March alone it contracted by 25.0% y-o-y. The manufacturing segment grew y-o-y by 4.7% and 4.0% in 1Q25 and March alone posting sharp deceleration compared to previous periods. The output of the five basic sectors (industry, agriculture, construction, trade, transportation) grew y-o-y by 1.4% and 0.9% in 1Q25 and March. Output in the transportation segment contracted by 0.6% and 0.3% y-o-y over the same two periods. Even though retail sales growth was in the positive territory (up y-o-y by 3.2% and 2.2% over the same periods) wholesale trade contracted y-o-y by 2.1% in 1Q25 and 3.0% in March in the aftermath of unimpressive performance of the oil-and-gas sector (and respectively exports). Construction grew by 6.9% y-o-y in 1Q25 and 2.6% y-o-y in March. Agriculture was up by 1.6%-1.7% y-o-y over these periods. Generally, the country’s economic performance appeared unimpressive in the aftermath of the reported 4.3% GDP growth in 2024, and an abrupt deceleration in 1Q25 looks unusual. This deterioration was likely caused by a too strong ruble and high interest rates. The former trims federal budget oil-and-gas revenues, while the latter makes borrowing uneasy. In March, household credit was flat following a contraction in the previous four months. Given the unimpressive econo...