Something has changed from Kaliningrad to Vladivostok. Specialists from Goldman Sachs calculated that from the end of last year the annual growth of Russia's GDP fell from about 5 percent. to about 0 percent The Russian Development Bank VEB draws attention to similar trends in its estimates of monthly growth. The measure of business turnover made by Sbierbank, the largest lender in Russia, also fell. Although the Kremlin is more cautious, he admits that something is happening. At the beginning of April, the Russian Central Bank noted that recently “in many sectors there has been a decrease in production due to a sharp drop in demand.”
Over the past three years, the Russian economy has achieved better results than almost all forecasts assumed – mainly due to fiscal wastefulness, high raw materials prices and the militarization of the economy. Everything indicates that the good run has just ended. And there are three reasons to support this thesis.
After the invasion of Ukraine in 2022, economists predicted a decrease in Russia's GDP by up to 15 percent. annually. Ultimately, in the year of aggression, it decreased by 1.4 percent, and then increased by 4.1 percent. In 2023, IO 4.3 percent In 2024, consumer trust in the Russian economy approached record levels. When it seemed that US President Donald Trump could communicate with Vladimir Putin and get him to end the war in Ukraine, some suggested that in 2025 the Russian economy would accelerate even more.
Why did it happen differently? There are three reasons. The first concerns what the Russian Central Bank euphemistically calls the “structural transformation” of the economy. This country, which was previously oriented to the West and accepted private entrepreneurship (to a limited extent), from 2022 it became the east -oriented war economy. This transformation required huge investments, not only in weapons factory, but also in new supply chains enabling the intensification of trade with China and India (as well as increasing domestic production). In mid -2024, Russia's real expenditure on fixed assets was 23 percent. higher than at the end of 2021.
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According to the central bank, the process of transformation of the economy has already ended. Expenses for the army show a similar tendency. Julian Cooper from Think Tank Stockholm International Peace Research Institute estimates that this year Russian expenditure on the army will increase by only 3.4 percent, which is a rapid slowdown compared to 53 % increase last year. Less expenses for “structural transformation” mean slower economic growth – but this should not worry Putin, if he releases funds for production investments. “Given the macroeconomic realities, we don't need such growth yet,” he said in December.
A blow below the waist
The second factor is monetary policy. Inflation in Russia has been above the target set by the central bank for months. This predicted 4 percent In an annual basis, meanwhile in February and March this year inflation exceeded 10 percent. One of the causes of this state of affairs is the aggressive increase in the army expenditure by the Kremlin, but also the shortage of labor caused by the consumption of the army and the emigration of qualified employees. Last year, nominal wages in Russia increased by 18 %, which forced the company to raise prices. In response to this, the central bank tightened monetary policy. On April 25, he decided to maintain a reference interest rate at 21 percent. – Which was the highest value from the beginning of the 21st century.
His very hawk attitude can finally bring results. High interest rates encouraged capital to inflow to the ruble, and the stronger currency makes imports cheaper. Russians' expectations regarding inflation in the next 12 months fall from about 14 percent. to about 13 percent The data suggest that inflation is slowly falling. The downside is the slowdown in economic growth. Instead of spending money, the Russians put it on savings accounts. High interest rates further discourage capital investments.
For the Russian government, a small, gradual economic slowdown can be a price worth paying if it allows you to master inflation. The problem is that this slowdown is neither gradual nor small. Because in recent weeks the third factor dominates – deterioration of external conditions. Along with the escalation of the trade war from the USA, global economic growth forecasts dropped rapidly, followed by oil prices. Economists are particularly concerned about the situation of China, the largest buyer of Russian raw material. The IMF reduced their GDP growth forecasts in 2025 from 4.6 percent. up to 4 percent
Falling oil prices cause various types of problems in Russia. They hit the stock exchange, where oil companies constitute a quarter of capitalization. The MOEX index, which tracks the stock prices of the 50 largest listed companies, fell by one tenth in relation to the last peak. Falling oil prices also have a direct impact on the economy. The government is already feeling it – in March revenues from oil and gas taxes fell by about 17 percent. in terms of year to year. On April 30, the Ministry of Finance, after lowering the forecast of energy from energy by 24 %, increased the forecast of the budget deficit for this year with 0.5 percent. up to 1.7 percent GDP. Regardless of the plans that Trump had against Putin, he had a blow to him below his waist.
I’m Ashley Davis as an editor, I’m committed to upholding the highest standards of integrity and accuracy in every piece we publish. My work is driven by curiosity, a passion for truth, and a belief that journalism plays a crucial role in shaping public discourse. I strive to tell stories that not only inform but also inspire action and conversation.
