The Russian economy is losing momentum. After the amazing results in 2024, there are clear signs of a slowdown this year. Tight monetary policy, sanctions pressure and trade wars led to a sharp decline in GDP growth to 1.4% in the 1st quarter of 2025. The Bank of Russia itself recently stated that the Russian economy is gradually returning to a balanced growth trajectory. Not everyone is able to adapt to the changed realities - there are “locomotive industries” that are still pulling the economy forward, and there are those who are “slowing down”.
Finam experts told us how it all affects the stock market, which companies investors should pay attention to, and where growth points are concentrated.
The path of the Russian economy is both dangerous and difficult
The marathon in which the Russian economy has been participating since the beginning of the special military operation is similar to a cross-country race. But for two whole years, despite the difficulties created by Western sanctions, Russia managed to amaze the whole world with its growth. In 2023 and 2024, the country's GDP grew by 3.6% and 4.1%, respectively. For comparison, last year the US economy grew by 2.8%, France - by 1.1%.
Industry has been the driving force of the Russian economy for all these years. The real sector was working to the maximum of its capabilities. In such conditions, the demand of businesses for labor was growing. As a result, unemployment in the country has fallen to a record low. In order to attract employees, companies had to raise salaries, which spurred consumer demand and inflation at the same time.
In an effort to curb price increases, the Bank of Russia agreed to a record rate increase to 21% per annum at the end of 2024. At the same time, not only the monetary policy of the regulator has changed, but also the situation in industry - there are signs of exhaustion of the “military driver” in the context of a special military operation.
As a result, in the 1st quarter of 2025, the growth rate of the Russian economy slowed down by more than three times compared to the dynamics recorded at the end of 2024, and amounted to 1.4%. This is below the estimates of the Ministry of Economic Development and the Central Bank. This dynamic is explained by the fact that bank loans at a high key rate have become less accessible to businesses and ordinary citizens, as well as the sanctions pressure from Western countries has not disappeared anywhere, and the US trade wars with almost the whole world have added problems for the Russian economy.
“The situation with the growth of the Russian economy since the beginning of this year looks difficult. In Q1 2025, Russian GDP growth amounted to only 1.4%, while in Q4 2024 the Russian economy grew by more than 4%. Shortages of human resources, sometimes strategically important raw materials such as rare earth metals, and problems with sales are very much contributing to the growth slowdown,” said Natalia Milchakova, Lead Analyst at Freedom Finance Global.
Leaders and outsiders of the race
The decline in GDP data clearly indicates that after a two-year race, the Russian economy is starting to slow down. This is indicated by the Central Bank itself. On June 6, when the long-awaited rate cut to 20% took place, the regulator stated that “the upward deviation of the Russian economy from the balanced growth trajectory is decreasing.”
“The military-industrial complex has reached the operational ceiling. Many companies are operating at full capacity, and the resources of the civilian sector are being squeezed out. Continued growth in the defense industry cannot compensate for the decline in sectors such as mechanical engineering, metallurgy, and construction. Despite the recent reduction in the key interest rate, monetary policy remains tight. This affects the availability of loans for both citizens and businesses. Capital-intensive industries are particularly affected.: construction and agricultural machinery,” Finam's Director of Strategy Yaroslav Kabakov wrote on his Telegram channel.
At the same time, Olga Belenkaya, head of Finam's Macroeconomic analysis Department, added that the number of industries with negative output dynamics is growing. The most difficult situation is in coal mining (despite the fact that the volume of coal production is still growing: in April +2.5% (YoY), in January-April +3.6%, and the net loss of Russian coal companies in the 1st quarter of 2025 amounted to 79.9 billion rubles), housing construction (production of “non-metallic mineral products", i.e. construction materials, -5.9% YoY in April, metallurgy (metallurgical production -7.8% YoY in April, truck production (April -22.4% yoy), buses, wagons, agricultural machinery.
“Industries often associated with the military-industrial complex, which have been growth drivers in recent years, are now showing less clear dynamics. Profit growth is slowing down. On the other hand, despite the increasingly voiced concerns of some government and business representatives about the risks of economic overcooling, the latest data rather suggest that the situation is stabilizing or even slightly improving in some respects. For example, in April, industrial production growth accelerated to 1.5% YoY after 0.8% YoY in March, and, according to the Ministry of Economic Development, growth by March, excluding seasonality, amounted to 0.9% MoM SA. However, this was mainly influenced by the improvement of the situation in the mining sector. In addition, the growth in construction turned out to be much stronger than expected (this reflects not only housing, but also, for example, infrastructure facilities) in April (+7.9% YoY versus 2.6% YoY in March and much higher than the consensus of 2.1%),” Belenkaya said.
In addition to the listed industries, where problems are observed in connection with the current state of the country's economy, retail trade can also be highlighted, especially the non-food segment, which is negatively affected by rising inflation and falling demand from the population. As Belenkaya explained, sales of some goods (cars, furniture, household appliances, electronics, clothing) are declining amid a reduction in consumer lending, a slowdown in mortgage growth and an influx of household funds for deposits.
“We think that the main sectors of the traditional economy, industry, agriculture, construction and mining are declining or showing zero growth. Growth may be continuing in the military-industrial complex, trade, services, financial sector, and air transportation sectors. The sectors that show the most significant growth are new sectors for our economy. These are online trading, logistics, the IT sector and services, and pharmaceuticals,” added Ovhannes Ohanisyan, Director of the analytical department at Digital Broker.
According to him, how it is reflected in the stock market can be assessed by the dynamics of companies from the above sectors. For example, securities of the pharmaceutical sector and retailers are growing. Shares of marketplaces and IT-companies are doing well, while shares of companies from traditional sectors are mainly declining, Mr. Ohanisyan noted.
“There is an IT sector in which growth is largely influenced by import substitution, but growth in only one IT sector will not go far, since its share in Russian GDP does not exceed 3%. This situation affects the stock market in such a way that shares of some IT companies may rise or fall in the short term depending on incoming news, but again, it cannot be said that there is a steady upward trend in shares of the IT sector in Russia. Most often, stocks show growth dynamics better than the market or fall worse than the market on the news about dividends. Macroeconomic factors currently have little effect on the stock market and are more important for the ruble exchange rate,” the source explained to Finam.
Anyway, Russian investors, despite the difficulties in the country's economy, still have plenty to choose from in the market. You should not panic in advance either. Moreover, at the end of last week, the head of the Central Bank, Elvira Nabiullina, assured that the regulator now sees no risks to the financial stability of large companies in the country.
