Russia: Economy shrinks for first time in three years in Q1 2026
Russia’s GDP falls for the first time in three years: According to preliminary data, Russia’s GDP contracted 0.2% year on year in Q1, following 1.0% growth in the prior quarter. Q1’s reading was the weakest since Q1 2023 and significantly undershot the Central Bank’s February projection of 1.6% growth for the same period.
Q1 growth likely hit by weak consumer demand: GDP growth has been on a downward trajectory since the start of 2025, and Q1’s result is a further clue that the overheated Russian economy has reached its limit. Disposable income grew a mere 1.5% in Q1—the least since Q3 2022—reflecting a VAT hike from January. This, plus still-elevated interest rates, likely dampened private spending in the quarter. However, government spending growth likely remained robust as the federal budget’s expenditure grew 17% year on year. Moreover, the U.S.-Iran war has boosted demand for Russian hydrocarbons and their price, aiding Russian exports and public coffers towards the end of the quarter.
The detailed Q1 GDP release will be published by the statistical office on 17 June.
U.S.-Iran war to facilitate economic rebound in Q2: Looking to Q2, our panelists forecast the economy to rebound. Tailwinds include the boost to government spending power from higher oil and gas prices due to the U.S.-Iran war, a temporary loosening of U.S. sanctions for Russian oil at sea, and the resumption of purchases of Russian oil by China.
For 2026 as a whole, our Consensus is for GDP growth to hover near 2025’s three-year low. Fixed investment should fall at a steeper rate, and private consumption growth should more than halve from 2025 due to softer wage growth and the VAT hike. More positively, public spending should accelerate and exports rebound, both benefiting from the U.S.-Iran war.
Prolonged war with Ukraine is a key downside risk, weighing on the economy through labor shortages, Western sanctions, war-oriented fiscal spending and weak private investment. On the flipside, higher-for-longer energy prices are an upside risk.