Russian economy in anticipation of “potential growth”? What does the decline in Russia’s GDP by 4% in the second quarter mean?

Published by
Peter Kavinsky

Russia’s GDP in the second quarter of 2022 decreased by 4% compared to the second quarter of 2021, follows from a report published today by Rosstat. The Bank of Russia said on Friday that by the end of 2022, Russian GDP could decline by 4-6%, but promised that in 2025 the Russian economy would return to “potential growth rates.”

Rosstat will present more detailed data on Russia’s GDP for the second quarter on September 9.

The data of Rosstat, published on August 12, coincided with the forecasts of the Ministry of Economic Development, which had previously estimated the decline in GDP in the II quarter by 4% in annual terms.

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Rosstat has not yet given its assessment of GDP dynamics in general for the first half of the year. The Ministry of Economic Development previously estimated a decline in GDP in the first quarter at 0.5% compared to the first quarter of 2021.

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From deep crisis to stagnation
Olga Shamina, Editor of the Economics Department of the BBC Russian Service, on the prospects for Russian GDP

Immediately after the outbreak of the war, in late February – early March, many economists predicted a real economic apocalypse: a decline of more than 10%, hyperinflation, shortages of goods and impoverishment of the population. Many said that the crisis would be deeper and longer than what Russia experienced in the 1990s.

However, all this did not happen. Instead of hyperinflation, deflation began in the Russian economy – prices are falling, but this is also a very alarming signal. There was no shortage either: instead, goods gradually began to be imported through parallel imports – however, often at higher prices and not in sufficient quantities.

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The ruble was stabilized with the help of restrictive measures from the Central Bank, and now the authorities do not know how to force it to decline. A currency that is too expensive is dangerous for the budget and business, which cannot redirect exports to Asian and African countries.

Actually, GDP is falling at a much slower pace than previously predicted. Business sentiment is gradually improving, but we can hardly expect a real recovery of the economy or its rapid restructuring.

The Central Bank recently described the situation in the Russian economy as an “adaptive expectations trap”. Consumers are reluctant to spend money and are reluctant to buy unknown brands at high prices. Business is not yet ready to buy large quantities of goods and somehow radically reduce prices.

As a result, the economy froze, and deflation began in the country – prices are gradually falling. Deflation can also become a trap: a price decline, if it is not related to the seasonal effect, speaks of depressive moods in society. If no one buys anything and prices do not rise at least a little, then the business stops investing, developing and expanding production.

In fact, Russia was able to avoid an acute crisis, but faced a new risk: GDP may slowly fall for several years, and then the economy will not quickly recover. Western technologies will generally be inaccessible to Russia, a “brain drain” has already occurred – this can be seen at least in the emigration of programmers.

All this can become a harbinger of stagnation, prolonged stagnation, which will replace the crisis. How will it look like?

People will live, earn something, but their prospects and opportunities will decline. And Russia will gradually lag behind other countries technologically and will increasingly depend on those who are still ready to cooperate with it – first of all, on China.

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On Friday, the Central Bank of the Russian Federation also published its forecast for the dynamics of the main economic indicators of the Russian economy in 2022-2025. It follows from this that in 2022 and during most of 2023 the Russian economy will contract.

In 2022, the Russian economy entered a phase of structural adjustment due to the introduction of unprecedented external trade and financial restrictions, the Bank of Russia explained.

At the end of 2022, the regulator predicts, Russia’s GDP will decrease by 4-6%. In 2023, the decline will be 1-4%. At the same time, in the fourth quarter of 2023, the economy will grow by 1.0-2.5%, according to the forecast, and in 2024, “recovery growth” will continue.

“In 2025, the economy will return to a potential growth rate of 1.5-2.5%,” the Central Bank believes.

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Peter Kavinsky

Peter Kavinsky is the Executive Editor at

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