The Russian economy has slowed sharply in recent months, according to the latest economic data, and may be at further risk if a fall in oil prices and global market turmoil persist.
Russia’s growth, fuelled by spending on the three-year-old war in Ukraine, exceeded four per cent in the past two years, but a labour shortage across many other sectors has contributed to a wage-price spiral that has pushed inflation above 10pc.
In response, the central bank has raised its key interest rate to 21pc, the highest level since the early 2000s, prompting howls from business leaders who say it is stifling investment. Meanwhile, the price of Russia’s main export, oil, is falling.
GDP growth fell to 0.8pc year-on-year in February from 3pc in January, the lowest figure since March 2023, with transport, wholesale trade and mineral extraction leading the decline, according to data issued last week.
Industrial output growth plunged to 0.2pc from 2.2pc.
Economists said that, even though February was one day shorter than last year, signs of a slowdown were evident. “The deterioration in a significant part of the industrial sectors is becoming persistent. Signs of a slowdown are taking hold,” Raiffeisenbank analysts said in a research note.
They cited high interest rates, labour shortages, a lack of production capacity outside the defence sector and continued pressure from Western sanctions.
And the slowdown is set to be exacerbated by a fall in the price of oil, which has hit its lowest levels since April 2021 on fears that US President Donald Trump’s import tariffs will trigger a global recession.
Reports prepared by the economy ministry and central bank for a February 4 meeting with the government – weeks before the news of sweeping US tariffs shocked investors around the world – had already flagged lower oil prices, budget constraints and a rise in bad corporate debt as risks to the economy.
The ministry’s report said it was becoming more likely that there would be a technical recession before inflation was under control, and that the slowdown in lending and investment caused by high interest rates was set to slow future growth.
The latest data show that only sectors linked to military production or involved in substituting sanctioned imports are still growing.
“In industry, stagnation continued,” said experts from the TsMAKP think tank, which advises the government.
It had previously said sectors outside the military-industrial complex had been stagnating since mid-2023.
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