What's happened
Russia's economy is slowing in 2025 due to policy tightening, lower oil prices, and waning wartime momentum. Despite high defense spending and sanctions, growth forecasts have been revised downward, with manufacturing contracting and GDP growth dropping to 0.9%. The central bank is balancing inflation control with recession risks.
What's behind the headline?
Russia's economic outlook in 2025 is grim, with multiple factors converging to slow growth. The central bank's rate cuts from 20% to 18% aim to stimulate demand, but the contraction in manufacturing and retail sales signals deeper issues. The prolonged military spending and sanctions have created a paradox: while defense investments sustain some sectors, they also drain resources and hinder broader economic recovery.
The recent downgrade from 1.5% to 0.9% growth reflects a shift from a wartime boom to a fragile slowdown. The IMF's warning of a potential recession is supported by data showing employment softening and GDP growth halving. The geopolitical pressure from the US, including threats of tariffs, further complicates the outlook.
This economic trajectory suggests that Russia's reliance on military expenditure and oil exports is unsustainable in the long term. The government’s focus on maintaining high defense spending amid declining revenues risks deepening economic vulnerabilities. The next few months will be critical in determining whether Russia can avoid a recession or if the slowdown will deepen, impacting domestic stability and international relations.
What the papers say
The Japan Times highlights concerns over Russia's dwindling liquid reserves and the impact of policy tightening, noting that official growth figures may be exaggerated due to hidden inflation and state-controlled prices. Business Insider UK emphasizes the slowdown, citing the IMF's revised forecast of 0.9% growth and the contraction in manufacturing, with analysts warning of a potential recession. Both sources agree that Russia's economy is under significant strain, with military spending and sanctions shaping the current landscape. The IMF's own reports underscore the impact of lower oil prices and policy tightening, while also noting the geopolitical tensions, including threats of tariffs from the US, which could further hinder economic recovery.
How we got here
Russia's economy has been heavily influenced by its military engagement in Ukraine, which initially boosted defense-related industries and government spending. Western sanctions and high oil prices supported growth, but recent economic data indicates a slowdown. The IMF and Russian officials now project weaker growth, with the economy facing pressures from policy tightening and declining global oil prices.
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