Experts debate technical recession in Russia

It seems that the domestic economy is on the verge of a "technical recession." This seemingly menacing term means a decline in real GDP for two consecutive quarters. Given all the circumstances and risks characteristic of 2025, this scenario may well become reality. Another question, to which there is no clear answer yet, is whether it will develop into a full-fledged recession, that is, into a long-term crisis.

According to preliminary results for the first quarter of this year, the Russian economy continued to slow down — in annual terms, growth was 1.7% (while last year it was 4.3%). This figure is provided by the Ministry of Economic Development. But we would like to understand how things are with quarterly and monthly dynamics, the assessment of which is not published by Maxim Oreshkin's department. An attempt to understand this was made, in particular, by economists from the Institute of Economic Forecasting (IEF) of the Russian Academy of Sciences. According to their calculations, since January 2025, the estimated value of GDP compared to the previous month, taking into account the seasonal factor (minus 0.3% in March compared to February). According to research conducted at the institute, the dynamics of demand in the industrial sector remains negative, enterprises are reducing output, curtailing investment plans and continuing to lose workers. It is not possible to compensate for this personnel outflow "in the conditions of the modern Russian labor market."

According to Bloomberg Economics, the Russian economy contracted by 0.6-0.8% in January-March compared to the fourth quarter of 2024, and by April, business activity was below the pre-COVID trend for the first time since the beginning of 2022. As the agency notes, judging by the data for April, the cooling will continue and, with a high probability, the economy will enter a "technical recession".

Let us recall that a recession (from the Latin recessus - "retreat") is a state of the economy, which is characterized by a stable (more than six months) decline in GDP, production volumes, a decline in business activity, investment, a reduction in the main financial indicators of companies and real incomes of the population, and an increase in unemployment. A technical recession means a slowdown in economic growth for two consecutive quarters. For example, it was observed in the United States in the summer of Covid 2022: in April-June, GDP fell by 0.9%, after a decline of 1.6% in January-March. The main reasons were: a decrease in private investment, including in residential real estate, and a reduction in government spending. This situation did not ultimately lead to any catastrophic consequences.

"Despite the formal indicator of the first quarter, the Russian economy is slowing down today, this is a fact recognized by the Central Bank, among others," says Igor Nikolaev, chief researcher at the Institute of Economics of the Russian Academy of Sciences. "But how stable this trend will be, what factors will determine it, whether a turning point will occur at some point, is still unclear. Now we see that the economy is being slowed down by a high key rate, expensive lending, a comprehensive shortage of personnel, and tightening of fiscal legislation. The April adjustment of budget parameters (in particular, the forecast deficit was increased from 0.5% to 1.7% of GDP) leaves no doubt that the level of the tax burden will only grow."

The geopolitical situation is still unpredictable, trade and tariff wars and OPEC+ policy do not contribute to the increase in oil prices, inflation in Russia is not declining, and the July indexation of housing and communal services tariffs is ahead. So the transition to a technical recession will happen with a probability of more than 50%, although by the end of the year I expect near-zero growth, Nikolaev reasons. As for the scenario of a full-fledged recession, it is too early to talk about it - due to the extremely high general uncertainty.

"In fact, we are talking about a decline in a number of industries that do not receive state defense orders, subsidies, and budget support," notes economist and top manager in financial communications Andrey Loboda. "First of all, this is freight transportation, logistics, and construction, which is suffering from cuts in mortgage lending. In general, economic growth in Russia is negatively affected by high interest rates and a labor shortage that is holding back production. However, a full-scale recession should not be expected this year (unless oil prices fall well below $50 per barrel), since there was already a 1.7% growth in the first quarter.

According to financial analyst Igor Rastorguev, it is too early to talk about the onset of a technical recession; it is difficult to agree with the conclusions of Bloomberg Economics. Of course, the Russian economy faced a number of restraining factors in the first quarter, including the exhaustion of the low base effect and the tightening of monetary policy. But a decrease in business activity in relation to the pre-COVID trend does not mean a decline in absolute terms - it is rather a signal of the end of the accelerated recovery phase. Already in April, there were signs of recovery in construction, manufacturing and retail trade.