The Central Bank has cautioned that Russia’s economy may enter a recession by the end of the year, following three straight quarters of diminished growth.
As reported by the Ministry of Economic Development, the GDP increased by 0.6% year-on-year in the third quarter (July to September), after growth rates of 1.1% in the second quarter, 1.4% in the first quarter, and 4.5% in the last quarter of 2024.
The Central Bank pointed out that a strong base effect from late last year, when there was a temporary spike in production in specific sectors, influenced their decision to revise the economic forecasts downward.
The Central Bank now anticipates that GDP might either decline by 0.5% or grow by 0.5% in the fourth quarter, a revision from their previous July estimate of growth ranging from 0% to 1% for the same period.
A quarterly contraction would represent the first year-on-year decline in GDP since the first quarter of 2023, when the economy contracted by 1.6%.
The recorded growth of 0.6% in the third quarter significantly fell short of the Central Bank’s August prediction of 1.6%.
Officials indicated that while the economy’s “overheating” is subsiding, challenges such as pressure in the labor market, ongoing inflation above 4%, and modeling projections suggest that this overheating may persist longer than earlier anticipated, potentially extending into the first half of 2026.
Consequently, the Central Bank indicated that elevated interest rates would need to remain for a prolonged duration.
“The economy hasn’t cooled down; it’s in a state of freeze,” remarked Anton Tabakh, the chief economist at Expert RA. “Many sectors are already feeling the pinch.”
The Central Bank acknowledged significant variability in performance across different sectors.
Production has decreased this year in export-driven industries like mining and ferrous metallurgy, while sectors catering to the domestic market have generally continued to grow, albeit unevenly.
Industries related to defense remain the primary contributors to growth, while the majority of civilian sectors are experiencing contraction.
Data from the Kremlin-affiliated Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) highlights a consistent decline in production within civilian industries since the beginning of the year.
Out of 129 major product categories, production has fallen in 73%, with the financial stability of many firms sharply deteriorating.
The proportion of companies at substantial risk of losing their financial stability could rise to 32.5% of total industrial revenue next year, up from the current 23.7%.
This slowdown is exacerbating the already precarious financial situation of numerous businesses.
“When demand stagnates or decreases, managing high interest rates becomes nearly impossible,” stated investment banker Yevgeny Kogan.
Business activity has contracted for four consecutive months, with only a slight recovery observed in October, primarily fueled by a temporary uptick in services.
Economist Dmitry Polevoy termed this a fleeting phenomenon.
“The overarching trend of slowing growth in both industry and services persists,” he asserted, projecting a 0.7% GDP decline in the fourth quarter.
Analysts from Promsvyazbank cautioned that the risk of an “economic overcooling” remains significant, warning that Russia’s economy is currently expanding at a rate below its potential range of 1.5% to 2.5%.
They observed that the improvement in September—recording a 0.9% growth after 0.4% in July-August—was largely driven by a brief revival in stagnant sectors, whereas the main growth drivers continue to lose traction.
