Russia: Economy decelerates for second consecutive quarter in Q3

Economy decelerates for second consecutive quarter in Q3

GDP growth falls to a year-and-a-half low:

GDP growth falls to a year-and-a-half low: A second release confirmed that economic growth cooled to 3.1% year on year in Q3 (Q2: +4.1 yoy), marking the lowest reading since Q1 2023 and the second consecutive slowdown. On a seasonally adjusted quarter-on-quarter basis, economic growth picked up to 0.7% in Q3 from the previous period’s 0.5% expansion.

A second release confirmed that economic growth cooled to 3.1% year on year in Q3 (Q2: +4.1 yoy), marking the lowest reading since Q1 2023 and the second consecutive slowdown. On a seasonally adjusted quarter-on-quarter basis, economic growth picked up to 0.7% in Q3 from the previous period’s 0.5% expansion.

Economy posts weaker readings across the board:

Economy posts weaker readings across the board: From a production point of view, the annual slowdown reflected weaker performances across three major subsectors of the economy. The agricultural sector contracted 5.2% annually in the third quarter, contrasting the second quarter’s 0.6% increase and marking the steepest decline in nearly a decade. In addition, manufacturing output grew at a softer pace of 5.9% in Q3 (Q2:+8.1% yoy), and construction activity decelerated to 0.3% (Q2: +5.6%). On the services front, growth in retail and wholesale trade fell to 4.8% in Q3 from Q2’s 8.0%, marking the worst result since Q1 2023. Moreover, the real estate sector swung into a 3.0% contraction in the three months to September (Q2: +1.1% yoy).

From a production point of view, the annual slowdown reflected weaker performances across three major subsectors of the economy. The agricultural sector contracted 5.2% annually in the third quarter, contrasting the second quarter’s 0.6% increase and marking the steepest decline in nearly a decade. In addition, manufacturing output grew at a softer pace of 5.9% in Q3 (Q2:+8.1% yoy), and construction activity decelerated to 0.3% (Q2: +5.6%). On the services front, growth in retail and wholesale trade fell to 4.8% in Q3 from Q2’s 8.0%, marking the worst result since Q1 2023. Moreover, the real estate sector swung into a 3.0% contraction in the three months to September (Q2: +1.1% yoy).

Sluggish growth ahead:

Sluggish growth ahead: Our panelists have penciled in another slowdown for Q4 and expect economic growth to more than halve from 2024 in 2025. Private spending and fixed investment will feel the weight of softer real wage growth and a cumulative 500 basis points of hikes in 2024. Moreover, labor shortages and elevated inflation will remain headwinds to GDP growth. Western support for Ukraine and Russia’s ability to continue to circumvent sanctions are key factors to track.

Our panelists have penciled in another slowdown for Q4 and expect economic growth to more than halve from 2024 in 2025. Private spending and fixed investment will feel the weight of softer real wage growth and a cumulative 500 basis points of hikes in 2024. Moreover, labor shortages and elevated inflation will remain headwinds to GDP growth. Western support for Ukraine and Russia’s ability to continue to circumvent sanctions are key factors to track.

Panelist insight:

Panelist insight: Analysts at the EIU commented:

“Growth will slow over the coming quarters as supply-side constraints weigh on activity, but inflation will continue to accelerate, putting pressure on the rouble. […] According to our forecast, growth will slow to 1.5% in 2025, partly owing to negative year-on-year base effects from the particularly strong growth rate of 4.75% year on year in the first half of 2024.”

Analysts at the EIU commented:

“Growth will slow over the coming quarters as supply-side constraints weigh on activity, but inflation will continue to accelerate, putting pressure on the rouble. […] According to our forecast, growth will slow to 1.5% in 2025, partly owing to negative year-on-year base effects from the particularly strong growth rate of 4.75% year on year in the first half of 2024.”