Russia Private consumption

GDP falls for the first time in three years in Q1

The first GDP contraction in three years: A second release confirmed that Russia's GDP declined 0.2% in annual terms in Q1, following a 1.0% expansion in the prior quarter. Q1's reading marked the first contraction in three years. In seasonally adjusted quarter-on-quarter terms, the economy shrank 0.6% in Q1, following a 0.4% expansion in the prior quarter.

Economy is strained by weak investment: Compared with the prior quarter's data, readings in Q1 softened for the agricultural sector (0.0% on a year-on-year basis vs +4.5% in Q4), the manufacturing sector (-1.5% vs +4.3% in Q4), the public administration and defense sector (+3.9% vs +4.5% in Q4) and the real estate sector (-1.1% vs -0.5% in Q4). In contrast, the reading for the retail and wholesale trade sector improved in Q1 (+0.3% vs -0.6% in Q4). While the GDP by expenditure figures will not be released until 1 July, available data suggests the shrinkage in GDP reflected declining investment. Rosstat reports that fixed investment fell 14.3% year on year in Q1 in current prices (Q4: -4.3% yoy), and the seasonally adjusted physical investment volume index also declined. More positively, a government splurge supported public sector activity, with Q1’s federal fiscal deficit exceeding the full-year budget plan by 1.2 times. Moreover, despite higher inflation, domestic trade rebounded thanks to a tight labor market, with a near-record low unemployment rate and stronger wage growth.

GDP should rebound weakly in Q2: In Q2, our panelists expect GDP to rebound, likely supported by higher government revenues from elevated energy prices amid the U.S.-Iran conflict, a temporary easing of U.S. sanctions on Russian oil at sea, and China’s resumption of oil purchases. In 2026, GDP growth should hit a four-year low, constrained by declining fixed investment and decelerating private spending. New Ukrainian attacks on energy facilities are a downside risk, while prolonged global energy shortages are an upside risk.

Panelist insight: EIU analysts commented: “We now forecast that real GDP growth will reach only 0.9% in 2026 […] although increased government spending and investment should lead to a rebound in the second quarter […] the economy is likely to carry the effects of the poor start to the year through the entirety of 2026.” Sberbank’s CEO Herman Gref argued that the Bank of Russia’s high policy rate is suppressing investment: “We believe [the policy rate is above] the psychological threshold at which businesses can begin to attract investment and initiate an investment cycle. 10-12% is the critical threshold that separates us from the investment cycle.”

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