Russian GDP growth slows, inflation rate decreases slightly

Published 19/05/2025, 08:40
© Reuters.

Investing.com -- The growth of Russia’s Gross Domestic Product (GDP) has slowed from 4.5% year-over-year (y/y) in Q4 to 1.4% in Q1, falling short of the anticipated 1.8%. This slowdown is in line with a sharp decrease in output and indicates that the economy could be heading towards a harder-than-expected landing.

The downward revision of estimates follows the release of weaker-than-anticipated activity data in recent months, especially in the industrial production sector. Growth in this sector has slowed from 5.6% y/y in Q4 to 1.1%. Although Rosstat does not release a seasonally-adjusted figure, it is estimated that the y/y figure aligns with a contraction exceeding 1.0% quarter-over-quarter (q/q).

The steep drop in GDP growth was unexpected, despite predictions of an economic slowdown this year. High interest rates have resulted in a spike in private sector debt servicing costs and a noticeable reduction in credit growth, which is negatively impacting domestic demand. Capacity constraints are becoming more restrictive, hampering activity and limiting the economy’s boost from loose fiscal policy. A technical recession is a possibility in the first half of the year, and GDP growth for the entirety of 2025 could be significantly below the current forecast of 2.5%.

Inflation data released today reveals a slight decrease in the headline rate, from 10.3% y/y in March to 10.2% in April. This is slightly lower than the consensus of 10.3% and Capital Economics’ estimate of 10.4%.

According to Capital Economics, "inflation has now likely passed a peak and we think the central bank will start to lower interest rates from Q3 onwards."

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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