By Darya Korsunskaya and Gleb Bryanski
MOSCOW, April 29 (Reuters) - The Russian economy contracted by 0.3% in the first quarter, marking its first quarterly contraction since early 2023, preliminary data showed on Wednesday, as the Ukraine war, Western sanctions, and high interest rates took their toll.
The $3.1 trillion economy of the world's major exporter of oil, metals, fertilizers and grain is also set to benefit from supply disruptions and soaring oil prices in the coming months as a result of the war
in the Middle East.
The Economy Ministry's data showed that in March gross domestic product grew by 1.8% after declines of 1.1% in February and 1.8% in January. In the fourth quarter of 2025, the economy grew by 1.0% and in the first quarter of 2025 by 1.3%.
Ahead of the data release, Russia's biggest lender Sberbank cut its 2026 GDP growth forecast to between 0.5% and 1% from between 1% and 1.5% after a poor first-quarter economic performance.
"The situation in the first quarter of the Russian economy was challenging against the backdrop of tight monetary conditions," said Sberbank's Deputy CEO Taras Skvortsov.
After a rate-setting meeting last week the central bank said that the contraction was largely driven by one-off factors such as a hike in the value-added tax at the start of the year and heavy snowfall that slowed construction.
Other Russian officials and business leaders blamed labour shortages and slow implementation of new technologies as well as the strong rouble for the contraction, which appeared to come as a surprise for the Kremlin.
Russian President Vladimir Putin scolded his top officials this month after the economy contracted in the first two months of the year and asked them to devise new measures to boost economic growth.
FALLING PROFITS AND LOSSES
The Russian economy has been demonstrating quarterly growth since the first quarter of 2023, when it shrank by 0.8%. Growth was boosted by a rapid expansion of defence-related sectors amid the military campaign in Ukraine.
The economy contracted 1.4% in 2022, but grew 4.1% in 2023 and 4.9% in 2024. It grew only 1% last year after the central bank hiked interest rates to fight inflation, and Moscow's official forecast for this year is 1.3% growth.
Sberbank said mining and manufacturing sectors were hit hardest, while there was also a significant slowdown in consumer spending, affecting retail trade. The construction sector had stagnated in the first quarter, it added.
Some analysts expressed cautious optimism on better-than-expected growth data for March.
"Positive data for March may indicate that the contraction was temporary. In the second quarter, we might expect weak growth," said economist Evgeny Kogan.
However, multiple reports of falling profits or losses by Russia's major companies show that with the key interest rate at 14.5% making debt off-limits, and little foreign investment, companies are struggling to invest and grow.
Data showed that corporate profits fell by 33% in the first two months of the year. Russian companies see the key rate level of 12% as comfortable for them to resume investment.
(Additional reporting by Elena Fabrichnaya;Editing by Peter Graff and Deepa Babington)
