Russia’s economy risk freezing over
Russian economic activity is showing a slowdown not only in manufacturing, but also in the service sector — early signs of an impending hit to growth after 2024’s robust expansion of 4.1%.
- The monthly PMI index — a closely watched indicator of business activity — recorded a slowdown in both the manufacturing and service sectors. On an index where scores above 50 indicate expansion and those below signify contraction, the service sector index for February was down to its lowest level in six months at 50.5. The reading for industry fell from 53.1 points in January to 50.2 points in February — just above the level which represents decline.
- Russian analysts point out that the slowdown is linked to high interest rates, still at a two-decade high of 21%. At the same time, an economic downturn in itself is unlikely.
- The central bank is using high borrowing costs to try to cool the economy, which has been overheating amid the war on Ukraine. But in recent months a real risk of an “overcooling” has emerged. This requires a more cautious monetary policy, analysts at Raiffeisenbank warned, who pointed out that at the end of January, output excluding mechanical engineering products “nosedived” significantly below the long-term trend, falling to the levels of early 2023.
Why the world should care
While it is premature to draw conclusions about the Russian economy based on the results of the first two months of 2025, there is no doubt that growth will be far lower than last year. Read our article on what the possible consequences of that will be.
