Sluggish progress in economic expansion persists.
Freshened Up:### "Sagging Business Confidence and Sluggish Consumer Growth"
Informal insights from industry experts:
- Experts: Gazprombank Senior Analyst, Institute of Economic Growth Executive Director, Sovcombank Chief Analyst, PSB's Analytics and Expertise Center Expert, and VTB Group Chief Economist
- Scheduled Events: June 6 and July 25 Bank of Russia key rate meetings
- Notable Figures: 49% year-on-year growth in deposits, 59% year-on-year decrease in new consumer credit issuance
An icy chill has settled over corporate Russia, as business confidence takes a nosedive—particularly within the ever-crucial consumer sectors, such as automobile production, furniture, and clothing. This dampening of spirits might be a reaction to waning consumer activity.
Gazprombank Senior Analyst's data reveals ongoing slowdowns in economic activity, which has led to predictions of GDP growth rates in 2025 falling below 2023-2024 levels. Three key trends dominate:
- Decreasing future demand among companies involved in processing sectors
- Falling shares of companies in the processing sector that are increasing product prices
- Perceptions amongst companies that their labor resources remain inadequate
According to Rosstat, sales of durable goods have been steadily plummeting in Q1 2025 by 5% per month, marking a downward spiral in demand. This trend may be attributed to escalating savings activity, with deposits held by physical persons experiencing an upswing of 49% year-on-year in March, and new consumer credit issuance continuously decreasing (59% year-on-year decrease in March).
In a broader economic analysis, the Institute of Economic Growth Executive Director acknowledges the influence of high interest rates and falling demand for durable goods on how business optimism in the processing sector is waning. Furthermore, enterprises in the extraction sector experience lower optimism due to less favorable global assessments, shedding light on industry-wide market concerns.
Markets have shown increased signs of cooling, with the potential intensification each month, except for sectors that receive direct government support or enjoy high budget demand. Interestingly, some enterprises have resorted to switching to part-time work and import supply has drastically decreased, diminishing supply constraints. The cultivation of more available supply and increased oil production quotas may enable the "key" rate to be significantly undervalued for the current economic landscape.
Sovcombank's Chief Analyst describes the current slowdown as a "soft landing" after an overheated economy. The bank's expectations include the Bank of Russia easing its interest rate cycle in July to a range of 19-20%. Additionally, negotiations between Russia and the United States may prompt earlier rate cuts if they yield positive results.
Overall, the consensus amongst experts suggests that the economy will persist in its slow growth trajectory throughout 2025, with taut monetary conditions persevering for the year, while the average key rate will likely hover around 19%. Nevertheless, the central bank is anticipated to initiate easing moves in the second half of the year in an effort to reach a year-end rate of 14%. The potential weakening of the ruble will support export-oriented sectors and lending in the long run.
Geopolitical and global economic conditions continue to present themselves as pivotal factors of uncertainty, with the possibility of weaker rubles, heightened inflation, and more rapid key rate reductions if diplomatic progress is made. Alternatively, falling oil prices and other commodities pose risks of a weaker ruble and inflation, casting a long and uncertain shadow over the economic landscape. Nonetheless, sunnier days may just be around the corner, given the prospects for striking peace and harmony in the months ahead.
The Gazprombank Senior Analyst highlights a link between the sluggish consumer growth and the slowdown in the economy, predicting that 2025's GDP growth rates might fall below those of the previous years. In the finance realm, deposits are on the rise, with a 49% year-on-year growth observed in March, while new consumer credit issuance is decreasing, shown by a 59% year-on-year drop in the same month.
