Rosstat reports indicate that economic growth is slowing down. This is facilitated by the situation in the global economy, the tight monetary policy of the Bank of Russia and other measures it is taking to cool lending. The preliminary estimate of GDP growth in 1Q25 from the Ministry of Economic Development (1.7% YoY) lags behind the February estimate of the Central Bank (2.9%), and the March data from Rosstat were mostly below the consensus forecast. There are more and more signs of stagnation in the industry with the transition of many industries to a reduction relative to the same period last year (in the terminology of the Ministry of Economic Development, growth continues, but has ceased to be frontal). Consumption is becoming more restrained, especially in relation to non-food products. This, as well as the significant strengthening of the ruble since the beginning of the year, affects the slowdown in inflation.
External risks have increased. The changes in tariff policy introduced by D. Trump and the resulting trade war between the United States and China have already led to a deterioration in global economic growth forecasts and a decline in global oil prices. Another factor putting pressure on oil prices is OPEC+'s decision to restore production more quickly. The price of Brent is near 4-year lows, and the Ministry of Economic Development lowered its forecast for the average price of Russian oil for this year from $69.7/bbl to $56/bbl, i.e. below the cut-off price of $60/bbl.
At the end of April, the Ministry of Finance revised the parameters of the federal budget for this year, taking into account the actual data for 1Q and the new forecast of the Ministry of Economy, the changes were approved by the government. The estimate of oil and gas revenues has been reduced by more than 20%. If earlier in 2025 it was expected to receive additional oil and gas revenues that would be used to replenish the National Welfare Fund, now the missing oil and gas revenues will have to be compensated by sales of yuan/gold. At the same time, planned expenditures were revised upward by 829 billion rubles, and the plan for non-oil and gas revenues was increased by the same amount (thus, the Ministry of Finance formally complies with the budget rule and can fulfill the stated principle of budget execution with zero structural primary deficit, which the Central Bank considers an important condition for disinflation). The planned deficit relative to GDP has increased by more than 3 times (from 0.5% of GDP to 1.7% of GDP, which is still a low level according to international criteria). It cannot be said that the decision of the Ministry of Finance came as a surprise to the market – the impracticability of the plan for oil and gas revenues in conditions of low oil prices and an unusually strong ruble began to look obvious, and the new parameters simply record this. In the autumn, the Ministry of Finance plans to clarify the budget parameters again. Based on last year's experience, the forecast of expenditures and deficits may be increased again: it is difficult to imagine that budget expenditures will "meet" the growth rate of 5.2% compared to the previous year, i.e. below the planned inflation.
We expect economic growth to slow down to 1.5-1.7% this year. According to our estimates, the peak of annual inflation will be reached in April-May and will amount to 10.3-10.4% YoY. Then, against the background of slowing current inflation and the base effect, we expect annual inflation to decrease to about 7% by the end of the year. In our opinion, the rapid slowdown in the current seasonally adjusted inflation (from 14% SAAR in November-December last year to 7.1% SAAR in March), a significant strengthening of the ruble, a slowdown in credit growth, monetary aggregates and consumption give reason for the Central Bank to start considering the possibility of lowering the key interest rate in the coming months. In our forecast, the Central Bank may begin reducing the key rate in June-July and reduce it to 16% by the end of the year (these expectations correspond to the trajectory of the lower bound of the Central Bank's baseline forecast). Our forecast may be too optimistic, especially given the more aggressive plans to increase regulated tariffs in 2026-27 in the new macro forecast of the Ministry of Economy, increased external risks and the suspension of the decline in inflation expectations of the population in April. On the other hand, the Central Bank has not yet included a possible improvement in geopolitical conditions in its baseline forecast (because based on facts), so on this side, hypothetically, there may be room for a more rapid easing of monetary policy.
The main forecast uncertainties for the Russian economy are related to external factors. The first "option" is the development of the situation with tariff wars and their impact on the global economy (a choice between further escalation or, conversely, the development of trade agreements and tariff reductions). The second is the fate of negotiations on the settlement of the conflict between Russia and Ukraine with the participation of the United States (reaching an agreement and lifting part of the sanctions or lack of progress in negotiations, continuation of hostilities and possible new secondary sanctions / duties against Russia). The favorable development of the situation with trade wars and negotiations on a peaceful settlement may contribute to higher growth rates of the Russian economy, disinflation and a faster reduction in the key interest rate. Adverse scenarios may worsen growth prospects, increase inflationary pressures, contribute to a longer-term tight monetary policy, or even an additional increase in the key interest rate.
Rosstat data indicate a slowdown in economic growth in 1Q25. According to the preliminary estimate of the Ministry of Economic Development, GDP growth in 1Q25 amounted to 1.7% YoY, which is significantly lower than the February estimate of the Central Bank (2.9% YoY). For comparison, in 1Q24, the economy grew by 5.4% YoY, in 4Q24 by 4.5% YoY (against the background of peak budget expenditures and early payment of bonuses by some companies). The main indicators for March were below the consensus forecast. In general, the slowdown in growth is manageable – the Central Bank believes that the economy has significantly deviated from its potential and a return to a more balanced growth trajectory is necessary to reduce inflation. However, as Central Bank advisor K. Tremasov recently pointed out, there are two scenarios for such a return: a “soft landing” (which he considers “much more likely”) or an economic downturn. In our view, the situation is indeed developing more in line with the “soft landing” scenario, although the economic slowdown is proceeding somewhat faster than expected and risks from the external sector have increased.
The slowdown is noticeable in industry (mining continues to decline relative to the base of last year, while manufacturing continues to grow noticeably in a narrow group of industries), construction, and even in the most recently prosperous consumption. Annual growth rates are negative in railway transportation and wholesale trade. The turnover of catering continues to grow at a high rate, as well as the demand for household, tourist and some other services.
Among the constraints on growth are the deterioration of global economic growth forecasts, sanctions, tight monetary conditions, a reduction in preferential mortgage programs from 2H24, and a shortage of labor resources. In addition, it seems that there has been a certain saturation of demand for an affordable range of goods in the segment of durable non-food products (especially at current prices) and pent-up demand may be forming in anticipation of a possible return of Western brands or an increase in the influx of "cheap" Chinese goods as a result of trade wars.
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