Russia’s economy contracted for the second quarter in a row as the western response to Moscow’s invasion of Ukraine helped plunge the economy into recession.
Russia’s gross domestic product fell by 4 per cent year-on-year in the three months to October, according to preliminary data released by the federal statistics service Rosstat.
The contraction follows sweeping restrictions from the US and Europe on Russia’s energy and financial sectors, including a block on half of the central bank’s $640bn in foreign exchange reserves. About 1,000 western companies followed suit, curtailing their Russian operations, while hundreds of thousands of people left the country after president Vladimir Putin mobilised the army’s reserves in September.
This is the second consecutive fall after the Russian economy fell 4.1 per cent year-on-year in the previous quarter. However, it was better than the 7 per cent contraction that Russia’s central bank forecast for the third quarter in July.
Russia’s central bank expects the economy to shrink by 3-3.5 per cent this year, governor Elvira Nabiulina told the Duma, Russia’s lower house of parliament, on Tuesday.
The central bank estimate is in line with the 3.4 per cent annual contraction forecast by the IMF last month, an upgrade on the 8.5 per cent the fund projected in April, weeks after Russia invaded Ukraine. Higher energy prices have helped boost Russia’s budget revenue, half of which comes from oil and gas. Lower export sales, following the cutting of trade ties with Ukraine’s allies, also helped boost the rouble.
Consensus Economics, a company that averages leading forecasters, expects the Russian economy to shrink by 4.6 per cent this year. The figure has been revised up from a 10 per cent fall estimated in April.
The fall in output marks the second Russian recession in three years. The economy contracted throughout 2020, during the pandemic. It is also the third largest in 20 years after the international financial crisis in 2009 and the pandemic.
“The contraction is [half as bad] as it was on the peak of the pandemic”, said Renaissance Capital economist Sofya Donets. “At the same time it’s clear that the shape of the recovery would be very different and there is no fast recovery in sight.”
The statistics service said that in the first quarter of 2022, which began before the invasion, Russia’s GDP grew by 3.5 per cent.
Russia’s economy has also been hard hit by higher interest rates. A sharp fall in the rouble in the early weeks of the invasion of Ukraine forced the central bank to raise borrowing costs to 20 per cent. However, the rouble’s rise since then, and signs that inflationary pressures are diminishing, allowed the central bank to lower rates to 7.5 per cent.
Inflation, which reached 12.9 per cent in October, is now expected to slow to between 5-7 per cent in 2023, before returning to the central bank’s 4 per cent target in 2024.
Rosstat will release a more detailed account of Russia’s third quarter GDP on December 14.
Additional reporting by Max Seddon in Riga
