The Russian economy recorded a 0.3% contraction in the first quarter, preliminary figures from the Economy Ministry showed on Wednesday, marking the first quarterly decline since early 2023. Officials and market participants pointed to a combination of external and domestic pressures - including the impact of the Ukraine conflict, Western sanctions and elevated interest rates - as weighing on activity.
Measured against the country's roughly $3.1 trillion economy, which is a major global exporter of oil, metals, fertilisers and grain, the contraction arrives amid a complex backdrop. The Economy Ministry's release also noted that, despite current weakness, Russia may benefit from supply disruptions and higher oil prices in the coming months linked to the war in the Middle East.
Monthly data included in the ministry report showed gross domestic product grew by 1.8% in March, following declines of 1.1% in February and 1.8% in January. On an annual-quarter basis, the data noted growth of 1.0% in the fourth quarter of 2025 and 1.3% in the first quarter of 2025.
In response to the weak start to the year, Russia's largest lender, Sberbank, revised down its 2026 GDP forecast to a range between 0.5% and 1.0%, from an earlier forecast of between 1.0% and 1.5%. Sberbank's deputy chief executive, Taras Skvortsov, said the first quarter was challenging given tight monetary conditions.
The central bank, after its rate-setting meeting last week, said the contraction was predominantly influenced by a number of one-off factors, explicitly citing a rise in value-added tax at the start of the year and heavy snowfall that held back construction activity.
Other voices in government and business highlighted additional constraints, including labour shortages, slow uptake of new technologies and the relative strength of the rouble. The contraction reportedly came as a surprise to the Kremlin, which had been responding to the earlier months' underperformance with renewed policy attention.
Russian President Vladimir Putin reprimanded senior officials earlier this month after output declined in the first two months of the year and asked them to propose measures aimed at stimulating growth.
Looking at recent trends, Russia had shown consecutive quarterly expansion since the 0.8% shrinkage recorded in the first quarter of 2023. That 2023 period marked a turning point after a 1.4% contraction in 2022. The economy subsequently expanded by 4.1% in 2023 and by 4.9% in 2024, though growth slowed to 1.0% last year following the central bank's interest rate hikes to tackle inflation. Moscow's official projection for the current year is 1.3% growth.
Sberbank identified mining and manufacturing as the hardest-hit sectors in the first quarter, adding that consumer spending slowed markedly and retail trade softened. The construction sector was described as stagnant during the quarter.
Some economists cautioned that the stronger-than-anticipated March reading might signal a temporary pause in the contraction rather than a durable rebound. Economist Evgeny Kogan said that while March's positive data could indicate the downturn was short-lived, he expected only weak growth in the second quarter.
Corporate financials reflected the tougher environment. Multiple reports of falling profits or losses among Russia's major companies, and aggregate data showing corporate profits fell by 33% in the first two months of the year, suggested firms faced constrained margins. With the key policy rate at 14.5%, borrowing costs remain high and access to debt financing is restricted, limiting investment capacity amid limited foreign capital inflows.
Companies surveyed indicated they would view a key rate around 12% as a threshold at which they could more comfortably resume investment activity.
Data points preserved from official releases and public statements:
- Q1 contraction: -0.3% (preliminary Economy Ministry data)
- Monthly GDP: March +1.8%; February -1.1%; January -1.8%
- Prior quarterly growth: Q4 2025 +1.0%; Q1 2025 +1.3%
- Sberbank 2026 GDP forecast cut to 0.5%-1.0% from 1.0%-1.5%
- Corporate profits down 33% in the first two months of the year
- Key policy rate: 14.5%; companies cite 12% as comfortable for resuming investment