Russia’s economic growth is slowing after Ukrainian strikes hit oil refineries, logistics hubs, oil terminals and port infrastructure. According to estimates by economists cited by Bloomberg, Russia’s gross domestic product grew by 0.9% year-on-year in the third quarter, compared with 1.3% in the previous three months. According to the publication, the attacks are disrupting production and supplies and intensifying inflationary pressure.
The sharpest decline was recorded in oil refining. Volumes contracted by 18% year-on-year in the third quarter—the steepest drop for a comparable three-month period since 2020. The shutdown of facilities deepened the decline in the extractive industry, while wholesale trade shifted into negative territory.
The strikes also affected oil-loading terminals and port infrastructure, impacting exports. “I also want to emphasize the impact of the escalation of the war in the Sea of Azov and the Black Sea on economic growth,” said Tatyana Orlova of Oxford Economics. According to her, it was this new crisis that largely led to a reduction in crude oil exports through the Black Sea, regardless of the attacks on refineries.
Consumer spending is also losing momentum
Outside military production, consumer demand remains the main driver of the Russian economy, but it too is weakening. Its growth in the third quarter was 4.2% year-on-year, compared with 7.2% in the second quarter. Meanwhile, prices are rising, wage growth is slowing, and companies are facing higher costs and expensive borrowing.
Higher fuel prices are filtering through to a broad range of goods, pushing inflation further away from the Russian central bank’s 4% target. According to economists’ estimates, annual inflation will reach 7.07% in October, compared with 6.35% in September. This limits the regulator’s ability to cut interest rates.
Military spending remains high
Russia’s government has once again increased military spending, abandoning its initial plans to cut it. The draft budget for 2027 sets it at $205 billion, while Moscow plans to maintain the higher level for at least another three years. At the same time, the budget deficit continues to grow.
Orlova believes that restrictive monetary policy and plans to reduce the budget deficit are incompatible with the economic growth targets set by the authorities. She described the official forecasts of GDP growth of 1.4% next year and 1.9% in 2028 as “overly optimistic.”
Vitaliy Shapran, a member of the Ukrainian Society of Financial Analysts and a former member of the Council of the National Bank of Ukraine, warns that a renewed intensification of strikes against vulnerable Russian facilities could trigger a severe economic crisis in 2027, limiting the Kremlin’s ability to wage the war with the same intensity.
Sources: unian.net, bloomberg.com