Economic growth eases in the third quarter of 2025

GDP growth decelerates again: A second release confirmed that Russia's GDP expanded 0.6% on a year-on-year basis in Q3, following 1.1% growth in the prior quarter. Q3's reading was the weakest since Q1 2023 and marked the third consecutive deceleration. On a seasonally adjusted quarter-on-quarter basis, economic output expanded 0.1% in Q3, following 0.3% growth in the prior quarter.

High interest rates and Ukraine conflict continue to weigh on GDP growth: Compared with the prior quarter's data, readings in Q3 softened for the manufacturing sector (+1.4% on a year-on-year basis vs +3.8% in Q2) and the real estate sector (-0.7% vs -0.4% in Q2). In contrast, readings picked up for the agricultural sector (+3.0% vs +0.8% in Q2) and the retail and wholesale trade sector (-1.1% vs -2.0% in Q2). Finally, the variation in the public administration and defense sector was the same as in the prior quarter (+5.3% in Q3 and Q2). The deceleration in year-on-year GDP growth looks to have been driven by a sequence of shocks that gathered pace over the summer. The Central Bank’s restrictive monetary policy—deemed necessary to rein in inflation—squeezed investment and hampered household credit. Just as domestic demand faltered, the external backdrop turned less supportive: Weaker natural gas exports due to EU sanctions, sliding oil prices and a strong ruble curtailed the external sector. At the same time, Ukrainian strikes on Russia’s energy infrastructure added to the drag, disrupting production and rippling through the wider economy.

Economy to contract in Q4: Our panelists see the economy slipping into contraction year on year in the final quarter of 2025. High interest rates and elevated inflation are expected to erode household purchasing power, a strain compounded by ongoing labor shortages. The external environment offers little relief: International sanctions and subdued oil prices are likely to squeeze export earnings, in turn narrowing fiscal space and weighing on government spending in an economy where hydrocarbons still account for roughly a fifth of government income. Looking ahead to 2026, our panelists anticipate that economic growth will linger near the three-year low seen in 2025, staying well below the pre-pandemic 10-year average of 1.9%. Key factors to watch are the trajectory of oil prices, the impact of sanctions on oil re-exports and the progress of peace negotiations with Ukraine.

Panelist insight: Commenting on the outlook, EIU analysts stated: “We estimate that real GDP growth will have slowed […] in 2025, and it will remain subdued in 2026. […] We forecast continued poor export growth as the country remains under sanctions for at least the first half of the year, but also lower import growth as the rouble depreciates against major trading currencies and consumer demand slows […]. We expect that Ukraine will continue to target refineries and other energy infrastructure as long as the war persists, and the risks to the economy are probably to the downside with this threat growing as the country invests in improving its long-range strike and drone capabilities.”

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