Introduction to Russia’s Economic Growth
Russia’s economy is expected to grow at a slower rate of 1.5% in 2025, down from the earlier forecast of 2.5%. This decrease is attributed to high interest rates imposed to reduce inflation, which have stifled borrowing. Finance Minister Anton Siluanov informed President Vladimir Putin of this revised forecast.
Economic Growth in Previous Years
In 2023 and 2024, Russia’s war economy experienced robust growth, with rates of 4.1% and 4.3%, respectively. These rates were significantly higher than those of G7 countries, despite the imposition of multiple rounds of Western sanctions following Russia’s invasion of Ukraine in 2022. However, the economy is now slowing down sharply.
Warning of Recession
In June, Economy Minister Maxim Reshetnikov warned that Russia was on the brink of slipping into recession unless monetary policy changed. The high military spending has led to increased inflation, prompting the central bank to raise its key interest rate to 21% in October, the highest level since 2003.
Impact of High Interest Rates
Although the central bank cut the interest rate to 20% in June and then to 18% in July, the economy remains affected by the high cost of credit and labor shortages. Siluanov stated that the Economy Ministry now expects growth of at least 1.5% this year, down from the official forecast of 2.5%.
Economic Projections
Siluanov told Putin that a balanced budget would provide more opportunities for the central bank to soften monetary and credit policy, making credit resources more accessible. Putin expressed concern about distortions in Russia’s wartime economy, particularly the cut in investment by major companies due to high interest rates.
Growth or Stagnation
During Putin’s first two terms as president, the Russian economy grew significantly, from less than $200 billion in 1999 to $1.7 trillion by 2008. However, the nominal GDP is now $2.2 trillion, similar to the level in 2013, before Russia annexed Crimea from Ukraine.
Industry Projections
First Deputy Prime Minister Denis Manturov informed Putin that the manufacturing industry would grow about 3%, lower than the earlier forecast of 4.3%. Industrial production is expected to be around 2%, down from the earlier forecast of 2.6%.
Current Economic Situation
According to the federal statistics service Rosstat, Russian GDP grew by 1.1% in the second quarter of 2025, compared to 4.0% growth in the same period last year. The International Monetary Fund expects Russia’s economy to expand by 0.9% this year, lower than its previous forecast of 1.5% growth.
Conclusion
In conclusion, Russia’s economy is facing challenges, with a slower growth rate expected in 2025. The high interest rates and labor shortages are significant factors contributing to this slowdown. To address these issues, Moscow may need to raise taxes and cut spending. The Russian government is working to find a balance between supporting the economy and managing the costs of the war in Ukraine.
