"On The Brink": The Russian Government Panicked
- 19.06.2025, 13:10
The country is sliding into recession.
The cooling of the overheated economy by high interest rates has brought it to the brink of recession - falling for two quarters in a row. GDP has already contracted in the first quarter, even seasonally adjusted, according to Rosstat data. It does not give a value, and analysts estimate a decline of 0.5% to 1.5%, assuming a downturn in the second quarter as well, writes The Moscow Times.
"By the numbers, we have a cooling. But ... all our numbers are a rearview mirror. According to current business sentiment, we in general already seem to be on the verge of going into recession," Economic Development Minister Maksim Reshetnikov said during a discussion at an economic forum in St. Petersburg, emphasizing: "I did not predict that we will fall, I said that we are on the verge, further everything depends on our decisions."
The minister is referring to high interest rates, which, according to him, "demotivate" businesses to invest both credit and their own funds. The TsMAKP think tank, close to the authorities, has noted since last year that profitability in many industries has fallen below risk-free investments (OFZs, deposits). Reshetnikov asked the Central Bank chairman to add "at least a little love for the economy" to the fight against inflation.
Nabiullina and Finance Minister Anton Siluanov do not share Reshetnikov's concerns. Nabiullina called what is happening "coming out of overheating" and said there will be no moderate rates without a drop in inflation. "We now have, I would say, cooling, but after cooling always comes summer," Siluanov said.
The cold weather continues. According to Rosstat, industrial production growth slowed to 1.2% year-on-year in the first four months from 4.6% in 2024, while retail trade turnover slowed to 2.4% from 7.2%. Corporate profits in the first quarter were 4.2% higher than a year earlier - in real terms, adjusted for inflation this is a contraction.
The PMI index, which reflects business activity in industry, fluctuates on the edge of growth and decline (50 points): in April it was lower, in May it rose to 50.2. The business climate indicator, which is calculated by the Central Bank based on the results of monitoring thousands of enterprises, shows an increase in business activity, but this is at the expense of expectations: assessments of the current situation this year are negative.
High interest rates contribute to the redistribution of resources to priority sectors. In industry, growth has long been concentrated in the military-industrial complex, while civilian industries have been stagnating since mid-2023 and now have moved into recession, the CMACP noted. its data show that the Russian economy has shown signs of transition from stagnation to correction, possibly to the beginning of recession, one of the center's heads, Dmitri Belousov, noted.