Russia’s Growth Outlook Slashed as High Rates and Taxes Weigh on Economy

Sberbank has revised down its forecast for Russia’s economic growth, projecting gross domestic product expansion of just 0.5% to 1%, compared with its earlier estimate of 1% to 1.5%.

The downgrade follows a weak performance in the first quarter of the year, signaling mounting pressure on the country’s economy.

The state-controlled lender updated its outlook ahead of the release of preliminary first-quarter GDP figures from the Economy Ministry, expected on Wednesday, as well as initial data from the national statistics agency scheduled for May 15.

Recent figures indicate that the Russian economy shrank by 1.8% in both January and February. Analysts attribute this contraction to a combination of high interest rates, increased taxation, a strong rouble, and subdued prices for Russian oil prior to the outbreak of the Iran war.

Commenting on the downturn, Taras Skvortsov, Deputy Chief Executive of Sberbank, said: “The situation ‌in ⁠the first quarter of the Russian economy was challenging against the backdrop of tight monetary conditions.”

According to Skvortsov, the downturn was particularly severe in the mining and manufacturing industries, which bore the brunt of the slowdown. He also pointed to a notable decline in consumer spending, which weighed heavily on retail trade. In addition, the construction sector showed no meaningful growth during the first quarter, effectively stagnating over the period.

Looking ahead, Sberbank expects inflation in 2026 to range between 6% and 6.5%, exceeding the forecast issued by the Central Bank of Russia, which has projected inflation at between 4.5% and 5.5%.

The revised outlook underscores the growing challenges facing Russia’s economy as restrictive monetary policy and fiscal pressures continue to limit growth prospects.

By fLEXI tEAM