Persistent Economic Expansion Exhibits Sluggish Progress
Title: Grim Outlook for Business Sector, Consumer Confidence Dwindling Speedily
Hey there! Let's discuss the latest economic trends in Russia.
First off, here's the deal: Gazprombank's Economic Forecasting Center has dropped a bombshell stating that business activity data hasn't changed the main economic trends. Economic activity is slowing down, and GDP growth rates in 2025 will be lower than in 2023-2024 [1].
What's more, the lowest (and fastest declining) business confidence is found in consumer sectors – automobile production, furniture, clothing, and so on. Reason? Well, it could be due to a decrease in consumer activity [1].
Rosstat data on retail trade confirms that sales of durable non-food goods have been consistently dropping throughout Q1 2025 by 5% every month, reflecting a decrease in demand. As a result, since July 2024, funds on bank deposits by physical persons have been soaring (up 49% year-over-year in March), while new consumer credit issuance has been plummeting (down 59% year-over-year in March) [1].
It's not all hopeless, though. In April, processing industry enterprises' expectations for price increases over the next 3 months decreased. That said, it's tricky to pinpoint the cause of this trend – currency effect or decreasing demand. It's possible that both factors contributed to these assessments [1].
Now, over to the Institute of Economic Growth named after P.A. Stolypin. They reckon that economic cooling is becoming increasingly apparent. If sustained, it will intensify each month, except for sectors with direct government support and budget demand [2]. They also believe that the so-called overheating, whose existence many doubt, can be tackled by a brief interest rate hike, combined with an increase in supply [2].
Sovcombank's Chief Analyst weighs in, stating that in April, we see a continuation of the slowdown in economic activity, returning to normal rates after the rapid growth of the past few years – this is the so-called 'soft landing' after overheating [3].
The Bank of Russia is anticipated to start easing the key rate at the July 25 meeting by lowering to 19-20%. However, if there's a clear deterioration in the economic situation or significant progress in Russia-US negotiations, the CB may start cutting as early as the June 6 meeting [3].
Lastly, according to our base forecast, the peak of inflation will be reached in April, and we expect the CB to transition to a gradual reduction of the key rate in Q3 2025. If the slowdown in inflation is accompanied by a reduction in geopolitical risks, the reduction could be swift – down to 14-16% by the end of 2025 [3]. However, if the level of geopolitical risks persists, it could be down to 17-19%. The return of the key rate to its neutral level (currently estimated at 7.5-8.5% by the regulator) is not expected to happen quickly – the normalization process will be lengthy, gradual, and likely to take several years [3].
Overall, it's fair to say that Russia's business confidence in consumer sectors presents a mixed picture, with near-term resilience but mounting structural challenges. Despite temporary support from government spending and wartime production, the consumer sector faces a credibility crisis [4]. Its future outlook appears increasingly contingent on macroeconomic stability, with long-term headwinds posing significant threats: growth deceleration, demand collapse, and investment risks [4].
References:1. Gazprombank's Economic Forecasting Center2. Institute of Economic Growth named after P.A. Stolypin3. Sovcombank4. [Unnamed source providing enrichment data]
Gazprombank's Economic Forecasting Center predicted that the business activity data won't change the main economic trends, with economic activity slowing and GDP growth rates in 2025 lower than in 2023-2024 [1]. Furthermore, consumer sectors such as automobile production and furniture have the lowest and fastest declining business confidence [1]. Sales of durable non-food goods have been dropping throughout Q1 2025 by 5% every month, signifying a decrease in demand [1]. In addition, finance parameters show a surge in funds on bank deposits by physical persons by 49% year-over-year in March, while new consumer credit issuance has been plummeting [1]. Weeks later, the Institute of Economic Growth named after P.A. Stolypin suggested that economic cooling is becoming increasingly apparent and could intensify each month, except for sectors with direct government support and budget demand [2].
