Economic growth in Russia is slacking.
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The Low-Key Economy Boom in 2025
In the initial days of 2025, the GDP growth figure clocked at a mere 1.7%, according to the Ministry of Economy's report, and this number falls short of the government's goal for the year (2.5%). Despite this setback, let's delve into the economic landscape painting a mixed picture.
As per "Kommersant"'s report, citing analysts from the Telegram channel "Solid Numbers," the output of fundamental sectors toward the end of March 2025 hovers around the October 2024 level. On the contrary, industries linked to retail goods production and demand continued to grow, in contrast to the drop in the automotive market.
However, the situation is less than rosy in the extraction and related industries, hit by external obstacles. On the brighter side, defense sectors are flourishing, but manufacturers are cautious; a survey conducted by the Institute of National Economy Forecasting of the Russian Academy of Sciences in April 2025 highlights that demand will decrease, and production volumes will shrink.
This gloomy forecast of demand and enterprise production plans doesn't bode well for a timely return to growth trajectories, even with the decline in selling prices witnessed in April, researchers suggest.
Income, wages, and consumption expanded significantly faster than GDP during the initial quarter. According to Rosstat, real incomes escalated by 7.1% year-over-year. The primary drivers of growth were labor compensation (7.3%), income from property (18.7%), and entrepreneurial income (10.3%).
Economic growth primarily hinges on household consumption, which increased by 2.4% in March and 3.2% for the first quarter (year-on-year). However, analysts at the Center for Macroeconomic Analysis and Short-Term Forecasting (CMAS) predict that, adjusted for seasonality and calendar effects, household consumption will stabilize.
It's worth highlighting that experts from the CMAS have speculated a potential recession looming in the industry producing civilian goods. Analysts notice that the total volume of industrial production in March was 100.8% compared to the same period in 2024, while the volume of production in sectors not associated with the military-industrial complex dropped by 1.6%. Furthermore, the production of civilian goods has been on a downward spiral by 0.8% each month in 2025, and the current indicators mirror April 2023 levels.
Initially expected to grow at 2.5%, GDP growth in 2025 might not exceed the Bank of Russia's prediction of a modest 1-2%. The consolidated forecast of analysts suggests an even more subdued average growth of 1.6%. The magnitude of economic growth will heavily rely on external economic conditions, such as the impact of global tariff wars on Russia's economy and the decline in oil prices.
Last week, the Russian Ministry of Finance revised the parameters of the federal budget for 2025. The revenue plan was downscaled by over 1.5 trillion rubles (the current budget project proposes 40.296 trillion rubles in revenue, now it's approximately 38.5 trillion rubles, or 17.4% of GDP).
Oil and gas revenues are forecast at 8.317 trillion rubles, or 3.7% of GDP, while non-oil and gas revenues stand at 30 trillion rubles. It is anticipated that the latter will surge by 829.2 billion rubles due to increased tax and non-tax payments.
The deficit is calculated at 3.792 trillion rubles or 1.7% of GDP. Additionally, the Ministry of Finance has revised its inflation forecast from 4.5% to 7.6%, reduced the oil price forecast from $69.7 to $56 per barrel, and forecasted an exchange rate of 94.3 rubles per dollar.
I'm not sure about the future of the industry producing civilian goods, as the total volume of industrial production has been decreasing, and the production of civilian goods has been on a downward spiral. It's also uncertain how finance will be affected, considering the Russian Ministry of Finance has revised the parameters of the federal budget for 2025, downscaling the revenue plan by over 1.5 trillion rubles.
