Rosstat has published its first estimate of GDP for the second quarter of this year using the output approach, which shows the sectors in which value added was generated. At first glance, the figures are striking: growth was broad-based, at almost 1 per cent compared with the first quarter, or 4 per cent on an annualised basis. However, the longer the time horizon, the less impressive the picture becomes. The increase reflects the low base at the start of the year. And if Russia’s economic potential in 2013, before the annexation of Crimea, is taken as the starting point, the cumulative shortfall in GDP growth since then is equivalent to two and a half years of growth – this is how far Russia has fallen behind its own potential.
Among the ‘leaders’ of growth in Rosstat’s latest statistics are several unexpected sectors: transportation and storage (despite the impact of Ukrainian drone strikes on oil storage facilities), real estate, arts, sports and recreation, and construction. Public administration, including defence and social security, which had ranked among the leading sectors over the past three years, has moved into the middle of the table. Declines were recorded in utilities, such as electricity, gas and steam, in extractive industries, where the downturn in oil production continues, and in professional, scientific and technical activities.
However, first impressions can often be misleading. This is the case here as well: the rapid growth in the second quarter was largely due to the low base in the first quarter, when GDP fell sharply, by 1.5 per cent on an annualised basis. Looking at the results for the first half of this year, the economy grew by just 0.1 per cent over the two quarters, meaning that the recorded growth is within the margin of error. At the same time, the sources of growth shifted into line with expectations: there was a sharp decline in the growth in value added from extractive industries, while construction, real estate, and culture, sport and recreation moved back into negative territory. Finance and insurance, by contrast, can once again be found in their familiar position among the leading sectors.
The ranking of leading and lagging sectors was even more in line with expectations when looking at the year-on-year results and comparing the second quarter of this year with the second quarter of 2025. The real engine of the war economy – public administration, including military security – ranks first. Motor vehicle trade and repair takes second place, driven by growth in household consumption, some recovery in imports, and combat operations, which generate work for vehicle repair businesses.
If we take another step back and look at the economy’s performance during the war, we can clearly identify the point at which the stimulus from military spending was neutralised by the Bank of Russia’s high interest rate, recession in civilian industrial sectors, and weakness in sectors whose activity depends heavily on the cost of money in the economy. Economic growth driven by military spending was exhausted in the fourth quarter of 2024. Since then, over six quarters, the economy has grown by just 1 per cent in total.
If we look at what has happened to the Russian economy since the annexation of Crimea and compare the current situation with the end of 2013, the cost of an aggressive foreign policy becomes clearly visible. The average annual growth rate over the past twelve and a half years has been 1.4 per cent, less than half the rate of global GDP growth. If Russian GDP had grown at an average rate of 4 per cent a year over this period – a rate that was regarded at the end of 2013 as a realistic estimate of the economy’s potential – the Russian economy would have been one-third larger by the middle of this year.
The cumulative shortfall in GDP growth over this period is equivalent to two and a half years’ worth of growth at 4 per cent annually. In other words, in terms of GDP output, Russia has fallen two and a half years behind its own potential trajectory.
