Russia has downgraded its 2025 economic growth forecast to 1.5%, sharply lower than the earlier 2.5% projection. Finance Minister Anton Siluanov told President Vladimir Putin that high interest rates aimed at curbing inflation are choking borrowing and slowing expansion.
The Russian economy expanded 4.1% in 2023 and 4.3% in 2024, outpacing G7 nations despite Western sanctions. However, momentum is fading in 2025 as tight monetary policy and wartime distortions weigh heavily on domestic demand.
Record military spending, the highest since the Cold War, has fueled inflation and forced the central bank to act aggressively. The key rate was hiked to 21% in October 2024, its highest since 2003, before being trimmed to 20% in June and 18% in July.
Analysts warn that the economy remains shackled by expensive credit and persistent labor shortages, despite rate cuts. Economy Minister Maxim Reshetnikov had already cautioned in June that Russia risked sliding into recession unless monetary policy eased.
Siluanov reassured Putin that GDP growth in 2025 would be “no less than 1.5%” if fiscal discipline allows monetary easing. Putin, however, has expressed concern that high borrowing costs are deterring investment by major companies.
Russia’s GDP trajectory highlights deeper structural challenges, with nominal output now $2.2 trillion, little changed from 2013 levels. By comparison, during Putin’s first two terms, the economy soared from under $200 billion in 1999 to $1.7 trillion in 2008.
First Deputy Prime Minister Denis Manturov said manufacturing growth would reach just 3%, below the 4.3% forecast, while industrial output is expected at 2%, down from 2.6%. This slowdown underscores the difficulty of sustaining wartime-driven growth without structural reforms.