Despite positive GDP growth (1.5% in the first four months), driven primarily by defense spending, business sentiment indicates an impending recession. This economic downturn is exacerbated by falling global oil prices and the government’s ending of subsidy programs, creating tension between the central bank, which is raising interest rates to combat inflation, and businesses. Putin, while praising the central bank’s efforts, emphasized the need for balanced economic growth, yet offered no concessions regarding the conflict in Ukraine.
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Russia’s economy is teetering on the brink of recession, according to Economy Minister Maxim Reshetnikov, due to weak business sentiment and indicators. He urged the central bank to ease its monetary policy, despite a recent interest rate reduction to 20 percent following a peak of 21 percent. Persistent inflation, exceeding 8 percent annually, is fueled by war spending and labor shortages, hindering sustainable economic growth. This economic fragility comes amidst ongoing conflict in Ukraine, including recent drone attacks and concerns over the Zaporizhzhia nuclear power plant.
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A new report by the Center for Macroeconomic Analysis and Short-Term Forecasting (CAMAC) warns that Russia’s economy is teetering on the brink of stagflation, with a potential recession looming in the second and third quarters of 2025. The report cites slowing GDP growth (1.4 percent in Q1 2025), high inflation (9.8 percent), and weakening consumer demand as key contributing factors. This precarious situation is exacerbated by falling investments and construction projects. To mitigate the crisis, the report recommends tackling inflation and stimulating investment, while the Central Bank of Russia maintains a tight monetary policy despite cutting its key interest rate.
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Russia’s GDP growth plummeted to 1.7% in Q1 2025, a significant slowdown from the previous quarter’s 4.5% and the weakest performance since Q1 2023. This decline is attributed to factors including the Central Bank’s tightening policies, ongoing sanctions, and supply chain issues. Industrial growth significantly weakened, with mineral extraction contracting and non-resource sectors slowing considerably. Experts even suggest a recession in civilian goods production, impacting various sectors including food production and construction materials.
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John Q. Hosedrinker