Consumption in Russia

Russia - Consumption

GDP contracts again in the third quarter

According to a preliminary reading, GDP slid at a slightly milder rate of 4.0% year on year in the third quarter, compared with the 4.1% contraction tallied in the second quarter. As a result, the economy entered a recession, triggered by the economic fallout from Russia’s invasion of Ukraine.

Sequential data and a complete breakdown of components are not yet available and will be published in the coming months. Commenting on the economy’s performance in Q3, analysts at Goldman Sachs said:

“Using a simple seasonal-adjustment filter, [the headline reading] implies slightly negative sequential growth. We think there was sequential growth in domestic demand, partially driven by inventory accumulation. Instead, the contribution to growth from net exports likely fell, despite some recovery in export volumes, due to higher imports.”

Economic conditions remain muted going into the final quarter of the year. The growing cost of the war in Ukraine in light of the partial mobilization order and enduring international sanctions will likely continue to hurt the economy both in Q4 and next year. Notably, lower global energy prices and much reduced natural gas shipments to Europe bode ill for the external sector.

Analysts at Swedbank highlighted the economy’s resilience so far this year, although they struck a bleak tone regarding the outlook:

“The Russian economy is looking like it is withstanding the blow from international sanctions, as it has managed to avoid the collapse of its financial system, and the economic downturn has so far been much smaller than many analysts predicted in the spring. However, this is only the tip of the iceberg. The Russian economy is likely to see a longer recession and lower potential GDP growth afterwards, as more painful sanctions will enter into force soon.”

FocusEconomics panelists project GDP to contract 3.5% in 2023, which is down 0.2 percentage points from last month’s forecast. In 2024, the economy is seen expanding 1.3%.