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Russian Business Earnings Plummet to Lowest Point Since the 2020 Pandemic
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The financial performance of Russian enterprises experienced a noticeable decline between January and July, generating 13 trillion rubles ($156 billion) in combined net earnings.
According to data provided by the official statistics agency Rosstat, this figure represents the difference between total profits of profitable enterprises and total losses incurred by unprofitable ones, marking the lowest recorded level since the 2020 pandemic lockdowns, as reported by The Moscow Times.
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Corporate earnings decreased by 15.7% in nominal terms compared to the same period in the previous year, while real profits dropped by 21% after accounting for inflation. Over the seven-month timeframe, corporate profits fell by 44% relative to pre-war figures recorded in 2021 before Russia's full-scale invasion of Ukraine.
Profitable enterprises recorded a 5.3% reduction in nominal earnings year over year. At the same time, total losses generated by unprofitable firms expanded by 25.6%. Currently, one out of three businesses operates at a loss, dropping the share of profitable enterprises to 66.6%, a level close to the 65.7% measured in 2020.
Economic growth in the country slowed significantly over the past year and came to a near standstill in the current period, with companies citing subdued consumer demand across various industry surveys.
Businesses find themselves pressured by persistent inflation and elevated operating expenses while limited demand restricts their ability to adjust retail prices accordingly. Economist Dmitry Polevoy noted that attempts to increase prices face realization obstacles due to demand constraints.
Alexey Klimyuk of Alfa Capital pointed out that high wages, elevated interest rates, and an increasing tax burden are putting pressure on corporate earnings, leaving businesses with fewer funds for development, according to The Moscow Times.
He stated that this condition leads to lower investment activity because businesses lack internal resources while external borrowing costs remain prohibitively high.
Analysts from the Institute of Economic Forecasting of the Russian Academy of Sciences highlighted this profit contraction as a major risk factor for the national economy, according to The Moscow Times.
Rosstat reported that nominal wages rose by 12.2% during the seven-month period, which corresponds to a 6% increase in real terms. Promsvyazbank analysts indicated that solid consumer spending continues to support the economy and prevent a formal recession.
However, monetizing this demand presents growing operational challenges. Retail sector profits, excluding automotive sales, dropped by 20% year over year.
Gazprombank analysts observed higher price sensitivity among consumers, leading traffic toward discounters and online delivery services. Their data shows that discount stores accounted for 94% of newly opened retail space among major FMCG chains during the first quarter.
Amid growing economic strain, the Kremlin is also weighing new fiscal measures aimed at large businesses. According to Ukraine’s Foreign Intelligence Service, Russian authorities are preparing to introduce another windfall tax to help compensate the financial burden created by the war against Ukraine.
Although some oligarchs had earlier proposed making voluntary contributions to the state budget, the government is now moving toward a mandatory “excess profits tax” targeting major companies.
The proposed tax would be calculated based on companies’ financial results for 2025, with a rate that could reach up to 20%, double the level imposed in 2023. It would apply to profits exceeding the average recorded in 2018–2019, which also served as the reference point for previous windfall tax measures covering 2021–2022.
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