Recession Looms for Russias Economy as Central Bank Lowers Growth Forecasts

Russia’s economy may fall into recession by year-end after three quarters of declining growth, according to a warning from the Central Bank.

As reported by the Economic Development Ministry, the GDP experienced a year-on-year increase of 0.6% from July to September, following growth rates of 1.1% in the second quarter, 1.4% in the first, and 4.5% in the last quarter of 2024.

The Central Bank attributed its decision to lower growth forecasts to the strong base effect from late last year, influenced by a «temporary production surge in some sectors.»

The Bank now forecasts that GDP will either decline by 0.5% or grow by 0.5% in the fourth quarter. In July, it had previously estimated growth of between 0% and 1% for that same period.

Should there be a quarterly contraction, it would signify the first year-on-year GDP decline for Russia since the first quarter of 2023, which saw a decrease of 1.6%.

The reported 0.6% growth in the third quarter fell significantly short of the Central Bank’s August prediction of 1.6%.

Officials indicated that while signs of «overheating» in the economy are diminishing, ongoing pressures in the labor market, sustained inflation above 4%, and current projections suggest that overheating may persist longer than anticipated, possibly into the first half of 2026.

Consequently, the Bank indicated that high interest rates are likely to remain for a prolonged period.

«The economy is not cooling down—it’s become stagnant,» commented Anton Tabakh, the chief economist at Expert RA. «Several sectors are already feeling the strain.»

The Central Bank recognized that economic performance varies greatly across different sectors.

Output has decreased this year in export-focused industries like mining and ferrous metallurgy, whereas sectors catering to domestic needs have continued to grow, albeit at inconsistent rates.

Defense-related industries are the primary contributors to growth, while most civilian sectors are experiencing declines.

Data from the Kremlin-affiliated Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) indicate a consistent decline in civilian industry output since the beginning of the year.

Production has dropped in 73% of 129 key product categories, and the financial stability of various companies is sharply deteriorating.

The proportion of firms at a high risk of financial instability is projected to rise to 32.5% of total industrial revenue next year, an increase from the current 23.7%.

The slowdown further exacerbates the already precarious financial situation of many enterprises.

«When demand stagnates or decreases, meeting high interest obligations becomes almost unfeasible,» remarked investment banker Yevgeny Kogan.

Business activity has declined for four consecutive months and only showed a minor uptick in October, primarily driven by a fleeting recovery in the services sector.

Economist Dmitry Polevoy characterized the October increase as a temporary blip.

«The overarching trend of slowing growth in both industry and services continues,» he stated, projecting a 0.7% decline in GDP for the fourth quarter.

Analysts at Promsvyazbank warned that the threat of «economic overcooling» remains significant, cautioning that Russia’s economy is currently growing at a rate below its potential of 1.5% to 2.5%.

They noted that the improvement in September—0.9% growth compared to 0.4% in July-August—was largely driven by a momentary recovery in stagnant sectors, while the main growth engines continue to lose steam.