Russia's one percent growth will not pick up to 1.5 percent until 2027

Author: Klaus Dormann According to the Russian Ministry of Economy, Russia's overall economic production in the first quarter of 2026 was 0.3% lower than a year ago. In view of the weak production development at the beginning of the year, the Vienna Institute for International Economic Studies (wiiw) has now lowered its forecast for this year's growth in the Russian economy from 1.2% to just 0.9%. This would be slightly lower than in 2025. Last year, growth weakened from 4.9% to 1.0%. In 2027, however, the wiiw still expects growth to accelerate to 1.5 percent.  Is Russia now even slipping into a "recession"? In addition to the wiiw, other institutes and banks have lowered their forecasts for this year's growth in the Russian economy. The Moscow-based "Center for Macroeconomic Analysis and Short-Term Forecasts (CMASF)" almost halved its monthly growth forecast for 2026 at the end of April. It now only expects GDP to increase by 0.5 to 0.7 percent this year. In March, it had still forecast economic growth of 0.9 to 1.3 percent for 2026 (The Moscow Times). Sberbank now only expects real GDP growth of 0.5 to 1 percent for 2026. The previous forecast range of Russia's largest bank was 1.0 to 1.5 percent (russia.capital). For some analysts, the Russian economy is already in a "recession" given the 0.3 percent decline in production in the first quarter of 2026 compared to the first quarter of 2025, reports globalmsk.ru. However, Nikita Maslennikov, a leading expert from the "Center for Political Technologies", contradicts this assessment in an interview with globalmsk.ru. In his opinion, Russia is unlikely to see a further decline in real gross domestic product in the second quarter, as "external factors" will play a stronger role in the second quarter than before. The rise in energy prices due to the conflict in the Middle East has led to additional oil and gas revenues. These would flow into the federal budget from mid-April. On the current development of the economy, Maslennikov emphasized that the increase in industrial production by a total of 2.3% in the first quarter of 2026 was exclusively due to the increase in production in the "defence industry". Production in the civilian sectors of industry was 0.6 percent lower than in the previous year. With regard to the recovery in consumer demand on the domestic market, he noted that the price trend had stabilized somewhat in March following the increase in January and February. This had slightly increased consumer demand. wiiw: "Stagnation in Russia despite money boon from Iran war" This is how the "Vienna Institute for International Economic Studies" (wiiw) headlines the Russia chapter in the press release for its "Spring Forecast" for 23 countries in Central, Eastern and South-Eastern Europe published at the end of April. However, the institute does not expect "stagnation" without any growth in overall economic production in Russia in 2026. It is only lowering its GDP forecast for the current year by 0.3 percentage points to 0.9%. For Russia's budget, the windfall comes "at exactly the right time" In its press release, the Vienna Institute assumes that the development of the Russian state budget in particular will benefit from the rise in energy prices: "The increased prices for oil and gas due to the closure of the Strait of Hormuz are providing Moscow with unexpected additional income. From Russia's point of view, this comes at exactly the right time, as it eases the tense budget situation. Last year, the budget deficit amounted to 3.9 percent of GDP - quite a high figure by Russian standards. Until the start of the war against Iran, it looked as if the Russian budget deficit could get out of hand this year, which is why the government was considering cuts of 10 percent, with the exception of military and social spending." "The Iran war is stabilizing the Russian budget. The longer it lasts and the longer oil prices remain high or continue to rise, the more positive the effects will be for Russia, as 58 cents of every US dollar by which the price of crude oil rises will flow into the Russian state budget," says Vasily Astrov, Russia expert at wiiw. Russia's GDP growth benefits "only marginally" from higher energy prices According to the press release, the development of production in the Russian economy is likely to "only marginally benefit" from higher energy prices. The higher revenues would not flow into additional expenditure, but would be earmarked for lower government borrowing and the reduction of energy companies' liabilities. Vasily Astrov cites "the still high key interest rates", insufficient investment in new production capacities and the shortage of labor as the main reasons for the weak growth of the Russian economy. The high energy prices caused by the Iran war would do little to change this. Astrov emphasizes the political impact of higher energy prices: "There is no doubt that the Iran war is helping President Putin to continue his war of aggression against Ukraine, as it provides him with additional revenue and greater political leeway." Russia sinks almost to the bottom of the wiiw growth rankings by 2027 The forecast by the Vienna Institute for International Economic Studies covers a total of 23 countries in Central, Eastern and South-Eastern Europe, including Turkey (see table at the end of the wiiw press release). These countries are marked in dark gray in the following chart. The figure shows that, according to the wiiw, economic growth in these countries will fall on average from 2.3% in 2025 to 2.1% in 2026. Kronenzeitung: Eastern Europe continues to grow faster than the eurozone, 29.04.26 The following two "rankings" for growth rates in 2026 and 2027 cover 12 of the 23 countries. The wiiw expects the strongest growth in the selected 12 countries in 2026 and 2027 in Turkey (2026: 3.7 percent; 2027: 4.1 percent). The leader in growth among the selected eastern EU members (blue bars) will be Poland in 2026 with 3.6 percent. In 2027, Croatia (2.7 percent) is likely to grow slightly faster than Poland (2.6 percent). Kronenzeitung: Eastern Europe continues to grow faster than the eurozone, 29.04.26 Hungary's economy will grow by 1.6 percent in 2026 and by 1.8 percent next year. At the bottom of the above ranking for 2026 are the EU states of Romania and Slovakia. At 0.5 percent each, their growth in 2026 is expected to be even lower than Russia's growth (0.9 percent). In 2027, Russia will then slip to the bottom of the ranking of the selected 12 countries - although the wiiw expects Russia's growth to accelerate to 1.5% in 2027. The complete table of forecasts for all 23 countries in the wiiw press release shows that the institute only expects economic growth to be slightly weaker in Belarus (1.4%) than in Russia (1.5%) in 2027. wiiw "Country overview": Russia's growth increases to 1.8 percent by 2028 In its "Country Overview" for Russia, the wiiw states for 2026: The additional revenue generated by high energy prices as a result of the Middle East war has provided much-needed relief for the ailing state budget. They are also likely to have a slightly positive effect on economic growth, which slipped into negative territory at the start of 2026. In the base scenario, real GDP growth of 0.9% is forecast for this year, followed by an acceleration in 2027 and 2028 due to the expected easing of monetary policy. If global energy prices remain high or continue to rise in the longer term, GDP growth will be higher, but inflation will then also accelerate." Compared to its "winter forecast" from January, the wiiw has now lowered its forecast for this year's real GDP growth from 1.2% to 0.9%. It has maintained its growth forecast for 2027: It continues to expect growth to accelerate to 1.5 percent next year. The wiiw raised its growth forecast for 2028 from 1.5% to 1.8%. Country overview Russia by wiiw wiiw: Country Overview Russia, 29.04.26 Current account surpluses will be much higher than previously expected wiiw has significantly increased its forecasts for Russia's current account surpluses in light of the current sharp increases in energy and commodity prices. In 2026, the current account surplus will reach 5.6% of gross domestic product (previous forecast: 1.1% of GDP). According to the new forecasts, the current account surpluses in 2027 (2.5% of GDP) and 2028 (2.8% of GDP) will be around twice as high as wiiw previously expected. Economy in the first quarter of 2026: Russia's GDP fell by 0.3 percent According to the Russian Ministry of Economy, Russia's overall economic production rose by 1.8% year-on-year in March 2026. However, the annual GDP declines in January (-1.8%) and February (-1.1%) were not fully offset by the increase in March. In the first quarter, GDP was 0.3% lower than a year ago. Monthly development of real gross domestic productChanges compared to the same month of the previous year in percent Alfa Bank.ru; Arseniy Anatolyev: The recovery of economic activity exceeded expectations. 30.04.26 According to initial calculations by the Ministry of Economy, seasonally adjusted real gross domestic product rose by 1.4 percent in March compared to February, having already risen by 0.3 percent in February compared to January. Industrial production in the first quarter was barely higher than in the previous year In March 2026, Russia's industrial production was 2.3% higher than a year ago. In the first quarter of 2026, however, it only rose by 0.3% year-on-year. In January and February 2026, industrial production was still down on the same month of the previous year. According to the "Russia Chartbook" published by the Kyiv School of Economics, companies' capacity utilization fell from its historic high at the end of 2024 to 77.5% in the first quarter of 2026. According to the institute, the reasons for the decline include the shortage of labor and the high cost of credit.  Kyiv School of Economics Institute: Russia Chartbook, 30.04.26 According to Rosstat estimates, industrial production rose again by 0.3% in March compared to the previous month, adjusted for seasonal and calendar effects. Mining continued to record moderate growth in March 2026 compared to the same month of the previous year (+1.0%). The increase in mining production in the first quarter of 2026 amounted to +0.8%. Mining was thus a "driver" of the overall weak growth in industrial production of 0.3%. In the "manufacturing sector", production rose by 3.0% year-on-year in March. Production in the "defense-related" industries continued to grow strongly ("production of other transportation equipment", "pharmaceutical production", "production of computers, electronic and optical products"). However, production fell in many "civilian" sectors. In the first quarter of 2026, production in "manufacturing" was still 0.7% lower overall than a year ago. Production in wholesale, transportation and construction fell in the first quarter Compared to the first quarter of 2025, production in wholesale trade (-0.5%), transportation (-3.4%) and construction (-10.0%) also fell in the first quarter of 2026. Agricultural production in the first quarter of 2026 was only slightly higher than a year ago (+0.2%). Economic indicators March 2026 and first quarter of 2026Changes compared to the previous year in % Finam.ru; Olga Belenkaya: Slightly negative dynamics with a recovery in March, Economic activity in March and the first quarter, 30. 04. 26 The consumer sector gave strong growth impulses - with significantly higher wages Real retail sales increased by 6.2 percent in March compared to the previous year. According to the Ministry of Economic Affairs, the main reason for the increase was growth in sales of cars (+42.1 percent), pharmaceuticals (+14.0 percent) and clothing (+8.8 percent). In the first quarter of 2026, retail sales rose by 3.6% overall in real terms compared to the previous year. Non-food sales grew significantly faster (+5.2%) than food sales (+1.9%). At +3.3%, real turnover in the services sector increased at a similar rate to retail turnover in the first quarter. Olga Belenkaya notes on the development in the retail sector that Rosstat has revised its data significantly upwards. She also points out that SberIndex data and current data from the Russian central bank on the development of the consumer sector were less positive than the Rosstat data. Wages continued to rise strongly in January and February. In February, average wages rose for the second month in a row by around 15 percent in nominal terms and 8.6 percent in real terms compared to the previous year. Monthly development of nominal and real wagesChanges compared to the same month last year in percent Alfa Bank.ru; Arseniy Anatolyev: The recovery of economic activity exceeded expectations. 30.04.26 According to Belenkaya, however, wage development in the sectors varied greatly. Many sectors recorded significantly lower increases than the national average. Reading tips: "Die Presse" podcast on the Russian economy: Fear in the Kremlin: Are the Russians ready to chase Putin out of office? Eduard Steiner and Vasily Astrov (wiiw) in conversation with Prof. Gerhard Mangott (University of Innsbruck), 30.04.26; Oil and gas price shock. Will Europe soon have to buy from Russia again? Eduard Steiner and Vasily Astrov (wiiw) in conversation with international energy consultant Johannes Benigni, 15.04.26 Spring forecasts of the Vienna Institute for International Economic Studies, wiiw: Vienna Institute for International Economic Studies; wiiw:Press release: Andreas Knapp: Spring forecast: Eastern Europe weathering the Iran shock for now, 29.04.26; Press Releases: English; Germanwiiw Forecast Report No. Spring 2026, April 2026: Growth model adapting under pressure; 141 pages; Executive summary by Richard Grieveson, 29.04.26; wiiw in the press; bne Intellinews, Clare Nuttall: Iran-linked shock's impact on Emerging Europe seen milder than 2022 crisis, says wiiw economist, 01.05.26, bne Intellinews, Clare Nuttall: Emerging Europe weathers Iran war shock, but risks mount, wiiw says, 29.04.26 news ORF.at: Eastern Europe's economy in upheaval. According to a forecast published on Wednesday by the Vienna Institute for International Economic Studies (wiiw), the countries of Central and Eastern Europe (CEE) have so far proved more resilient than the eurozone. 29.04.26 Overall economic development: russia.capital: Kremlin acknowledges downward trend in Russia's economy, 02.05.26 The Moscow Times: Russian Growth Outlook Darkens as Ukraine Hits Oil Infrastructure, May 01, 2026 Globalmsk.ru: The Ministry of Economic Development summarized the economic results for the first quarter of 2026, 01.05.26 Alfa Bank.ru; Arseniy Anatolyev: The recovery of economic activity exceeded expectations. Alfa-Bank analysts comment on the latest macroeconomic statistics, 30.04.26 Kyiv School of Economics Institute: Russia Chartbook by KSE Institute - Oil Export Revenues Surge due to Iran War; Revenues Set to Improve but Budget Situation Would Only Normalize with Long Conflict, 30.04.26 Politkom.ru; Marina Voitenko; Weekly report: Key interest rate decision in the context of risks, 30.04.26 russia.capital: Nabiullina rejects accusation of slowing growth; 29.4.26 Joe Blogs, Video: 50 Day Disaster. For the past 50 days, the price of Brent crude oil has remained above $90 per barrel - and history shows that doesn't happen very often, 28.04.26 Al Jazeera English, Explainer video: War on Iran: How the Strait of Hormuz crisis boosts Russia's economic leverage, 26.04.26 Finam.ru; Olga Belenkaya: Slightly negative dynamics with a recovery in March, Economy in March and the first quarter, 30.04.26; Finam.ru; Olga Belenkaya: The effects of one-off factors on the economy should weaken in the second quarter, 27.04.26 RBC.ru: Russia’s GDP fell by 0.3% in the first quarter, 29.04.26. MK.ru; Natalia Trushina: Economist Frumina: „High oil prices do not automatically mean improved welfare for citizens.“ MK spoke with Svetlana Frumina, head of the Plekhanov Russian University of Economics, to find out what factors led to Russia’s decline in GDP and how the surge in oil prices due to the Middle East conflict will impact it, 26.04.26 BR24, Judith Schacht: Russia's economy under pressure: Putin admits weakness, 26.04.26 Fortune, Jason Ma: Russia's economy minister admits 'reserves have largely been used up' while communist lawmaker warns of 1917-style revolution as GDP shrinks, 25.04.26 FR.de; Marcus Giebel: Putin slips Russia's economy - many sectors in distress, 24.04.26 Ntv.de; André Ballin, dpa: Minus instead of growth. Russia's war economy shrinks unexpectedly, 24.04.26; MSN.com, dpa: Russland droht persistent Wirtschaftsflaute, 24.04.26 MSN.com; The New Voice of Ukraine: Rising oil prices won't save Russia's faltering economy from recession - Bloomberg, 22.04.26 Finam.ru; Alexey Primak, expert at the Institute of Financial and Investment Technologies: Investments are shrinking - and we pretend everything is normal? 22.04.26 Kommersant; Artem Chugunov: Industry increased production in March, 23.04.26 Finmarket.ru: Industrial production in Russia increased by 2.3 % in March, 22.04.26 The Moscow Times: Russian Companies Freeze Hiring as Demand Cools, Central Bank Says, 21.04.26 Finam.ru: Debriefing by Natalia Asedova: Labor shortage: What are the risks for the Russian economy? 21.04.26 Merkur.de; Nils Thomas Hinsberger: Putin's crisis: Russia's economy still in danger - despite rising oil prices, 20.04.26 ndtv.com; Prateek Shukla: Oil Revenue vs Ukraine War Bills: Is Russia Hiding Economic Stress? The non-oil deficit remains deeply negative. This means Russia still relies heavily on energy exports to balance books, 23.04.26 The Spectator; Alexander Kolyandr, Centre for European Policy Analysis: Is Russia's economy really on its last legs? The head of Swedish military intelligence, Thomas Nilsson, told the Financial Times this week that Russia's economy is far weaker than it appears, that the Kremlin systematically manipulates its statistics. One need not be a Kremlin agent to find this less than convincing. 21.04.26; inosmi.ru: The collapse of the Russian economy: fact or fiction? The Spectator: The West grossly exaggerates Russia's weakness; original article; 22.04.26; Euro News; Emma De Ruiter & Dimitri Kavalerov: Russia faked economic data to appear more resilient to its war and sanctions, intel report says, 21.04.26; Business Insider Germany: Russia's economy is heading for "a financial catastrophe", according to Swedish military intelligence, 20.04.26 Financial policy; State budget and oil prices: bne IntelliNews, Ben Aris: Russia’s economy is cracking - but so is everyone else’s. The war in Ukraine has pushed Moscow’s finances to the brink. A comparison of debt, deficits and debt-servicing costs reveals that several of Russia’s critics are in comparably troubled fiscal shape, 27.04.26 Alfa Bank: The Ministry of Finance will resume foreign exchange transactions in May, 23.04.26 Finam.ru: According to Siluanov, inflation processes in the Russian economy are stabilizing, 18.04.26 BondGuide; Alexander Kolyandr and Alexandra Prokopenko (THE BELL): Russia is not wasting time with high oil prices: but spending is still outpacing revenues, 17.04.26 Focus.de; Lars-Eric Nievelstein: Russia's budget deficit hits annual target after only three months. Russia's economy is under pressure. Revenues are weakening enormously. 17.04.26 Re:Russia: Oleg Vyugin: Expertise: A Cancelled Manoeuvre: The Challenges Facing Economic and Fiscal Policy in 2026, 16.04.26 The post Russia's one percent growth will not pick up to 1.5 percent until 2027 appeared first on ostwirtschaft.de.