Economic growth eases in the second quarter of 2025

Economy cools in Q2: Russia's economy shifted into a lower gear as GDP expanded 1.1% in annual terms in Q2, following 1.4% growth in the previous quarter and marking the weakest result in over two years. On a seasonally adjusted quarter-on-quarter basis, economic output grew 0.4% in Q2, following a 0.6% contraction in the prior quarter.

Broad-based deterioration drags on GDP growth: Relative to the prior quarter's data, readings in Q2 worsened for the agricultural sector (+0.8% year on year vs +1.1% in Q1), the manufacturing sector (+3.8% vs +4.5% in Q1), the retail and wholesale trade sector (-2.0% vs -0.1% in Q1) and the public administration and defense sector (+5.3% vs +6.8% in Q1). In contrast, the reading for the real estate sector improved in Q2 (-0.4% vs -1.6% in Q1). The retail and wholesale trade sector felt the pinch of historically elevated interest rates and persistent labor shortages due to the Russia–Ukraine conflict. Moreover, the downturn in the public administration and defense sector hints at cooling wartime spending that had driven sturdy GDP growth in 2023–2024.

Economic growth to ease later in 2025: Our Consensus is for GDP growth to cool further in H2 compared to H1. Elevated interest rates and inflation, paired with labor shortages, should dent household budgets. Moreover, international sanctions plus soft oil prices should hit export revenues and government spending in turn. In 2025 as a whole, our panelists expect economic growth to hit a three-year low, dipping below the pre-pandemic 10-year average of 1.9%. Oil prices, sanctions on oil re-exports and peace negotiations will be key to track; a peace deal could imply some easing of trade restrictions and labor shortages.

Panelist insight: Commenting on the outlook, EIU analysts stated: “Our forecast is subject to significant risks, which are skewed to the downside, mostly over how long the war will last. Should it continue throughout the forecast period (most probably at a much lower intensity), then the potential for stagflation and a full-year recession within the next two years will be greatly increased, and ongoing commitment of state funding to the war would probably begin to have a deleterious impact on social projects and spending.”

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