Russia’s state statistical agency, Rosstat, reported on Friday that first-quarter gross domestic product (GDP) growth was only 1.4 percent, a steep decline from 4.5 percent growth in the last quarter of 2024.
Russian officials and economic analysts were expecting growth of around 1.7 percent, so the final figure was a disappointment even by those reduced expectations. Outside economists projected the economic slowdown would continue through April and beyond, with a recession potentially looming on the horizon. Russian officials insist growth would return to 2.5 percent by the end of the year, which would be still be lower than the average of four percent over the past few years.
The Moscow Times quoted analysts who said the steep decline in the first quarter of 2025 was caused by tight central bank policies, supply shortages, high inflation, reduced oil prices, and the long-delayed effect of sanctions against Russia’s invasion of Ukraine.
“Paradoxically, a possible peace agreement with Ukraine could turn into a new shock for the economy,” the Moscow Times wrote. Peace with Ukraine would presumably reduce heavy spending on defense, and Russia’s military-industrial complex accounted for about 40 percent of GDP growth last year.
Another Russian government agency, the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF), said the civilian economy is already in recession, contracting by 0.8 percent to 1.1 percent each month in 2025. This was partly a result of the Russian government diverting so much money and labor away from civilian companies and into military spending.
The Kyiv Independent took the sudden drop in GDP growth as evidence that “Russia’s economy is under increasing strain from its war in Ukraine and Western sanctions.”
The force that might fracture Russia’s strained economy is oil. Russia gets a great deal of its income from oil, and prices are headed down to $55 to $65 per barrel. Russian oil sells at $8 to $12 below the average price because Western sanctions force Russia to sell its oil at a deep discount. Russia’s current income forecast for the remainder of 2025 is about $32 billion below projections made at the end of last year.
OPEC+, the expanded cartel of mostly Middle Eastern oil-producing nations that includes Russia, began lifting production limits earlier this month, causing supplies to surge and worldwide prices to drop.
Although Democrats and left-wing media frequently accused Donald Trump of being sympathetic to Russia during the 2020 presidential campaign, it was the Biden administration that added hefty exemptions to Russia sanctions to ensure European customers could continue buying Russian oil and gas with U.S. dollars — and it was the Trump Treasury Department that allowed those special carve-outs to expire in March. Trump has scolded the Europeans for funding Russia’s war effort by buying oil from Moscow.
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