Impacts of Ukraine invasion on Russia’s economy already apparent in March

Rosstat preliminary figures show Russian first-quarter GDP growing by 3.5 % y-o-y. Rosstat figures further show that the impacts of the Ukraine invasion in late February already began to drag down Russian economic growth in March. Industrial output, for example, grew by nearly 6 % y-o-y in 1Q22, but only by 3 % in March. Manufacturing output growth, which was up by 10 % y-o-y in January and 6 % in February, contracted by 0.3 % in March. The growth trend in the mineral extraction sector was fairly stable throughout the 1Q22, with output up each month by 8–9 % from a year earlier. Retail sales grew by 3.6 % y-o-y in January-March overall, but only 2 % in March alone, pointing to a weakening consumer demand.

The effects of the war on the Russian economy are expected to be much more pronounced in the second quarter of this year. Russia’s economic development ministry and the central bank expect the GDP to hit bottom in the third or fourth quarter of this year, with the possibility of subsequent slow recovery next year. Several international forecasters expect the contraction in Russian GDP to continue also next year.

Growth faded in the first quarter for Russian GDP and in the economy’s core sectors

Sources: Rosstat and BOFIT.