Russian economy stagnant

Low oil export prices and the slowdown in economical activity in the country since mid-2024 have severely reduced the financial capacity of the Kremlin and forced the government to seriously revise economical forecasts for the coming years. According to current GDP projections, GDP is expected to increase by 1% in 2025 alternatively of the planned 2.5%. Many companies are slowing down the pace of growth by reaching the limits of their production capacity, as well as by curbing request resulting, inter alia, from state fiscal policies. It besides reduces budget support for the economy at advanced interest rates, limiting access to capital. Deeper problems, however, do not mean that the Russian Federation (FR) is on the brink of a serious economical crisis. The war remains a precedence of the Kremlin and it can finance additional resources, although in this respect its scope for manoeuvre narrows.

According to preliminary Rosstat data^[1] in the first half of 2025. GDP of Russia increased by 1.2% y/y compared to 4.8% a year earlier, which is the consequence of a simplification in both consumer and investment demand. This level of this indicator means stagnation. At the same time, there are many doubts about the quality of the statistic there.

In 2025 the dynamics declined powerfully consumer demand. In the retail trade, purchases of agri-food products and medicines grew, while many industrial goods, including cars, telephones, construction materials and furniture, were falling.

Also reported at the same time slowing down investment. In the first 8 months of 2025, capital expenditure increased by 4.3% y/y (a year earlier – by 11.2%), with a second 4th slowdown in dynamics. Around 60% of all investments have been made in 10 regions of Russia (now 89 of which 5 are located in occupied territories of Ukraine), including 19% in Moscow itself. Much of the money allocated to these projects came from national and regional budgets (approximately 14% of the total) and from state-owned companies. These entities have laid down, among others, the construction of the Gazprom Amurski Gas Processing Plant or the expansion of transport infrastructure, especially in the Far East FR. precedence industries, specified as arms production, besides have access to preferential credits. The financial capacity of private companies, on the another hand, has been severely reduced by advanced credit costs and decreasing – due to expanding taxation burden and lower gross – profits. The persistent advanced interest rates have led to more than 60% of all investments being made from the company's own resources.

Although the deficiency of request allowed the Central Bank of the Russian Federation (CBR) to reduce its base interest rate by 4pp (from 21 to 17%), it remains advanced anyway, which severely limits citizens and businesses access to capital.

Production within 8 months 2025 processing sectorwas higher 3.2% y/y, but fundamentally all civil sectorsnoted her decline. Much of them faced problems a year ago. The situation is peculiarly hard in the automotive sector, which is experiencing a collapse in demand: in the first 9 months of 2025 in Russia, little than 20% of fresh passenger cars and light commercial vehicles (so-called LCVs) were sold and almost 60% little trucks were sold. On the 1 hand, this is due to the advanced interest rates in FR and the lower availability of loans and the decline in activity in another sectors, including transport and construction. The second is that imports of cars increased rapidly in 2024, mainly from China.^[2], and the accumulation of stocks by dealers due to a decisive increase in the recycling charge on imported cars since October 2024, which led to their oversupply.

As a result, the sales of AwtoWAZ, the largest car maker in the country, decreased by 20% in 9 months. Kamaz, the leader of the truck market, noted a akin scale of reduction. Both companies belong to the Rostiech corp (which primarily controls the factories of the arms sector) and can number on state support in the form of subsidies or public procurement (in 2024, around 30% of the second production could be carried out under arms contracts), as well as regulations limiting the improvement of abroad car presence. However, Kamaz recorded a failure of over $370 million in the first half of the year (AwtoWAZ since 2022 has not published financial results). Due to the collapse of demand, all Russian automotive companies had to control to a four-day working week in the second half of the year.

In the second half of 2025 reports of wage cuts, which is simply a consequence, among others, of shortening working time, comes from virtually all sectors of the economy aimed at gathering civilian needs. For example, the cement maker Cemros closed the plant in Belgorod and in the others introduced a four-day working week. Rostowski Rostsielmasz (manufacturer of agricultural machinery) reduced production by 30% to 3 days. The company Swieza closed the birch plywood mill in Tiumeni (the power of the plant was utilized in little than 50% and has generated losses since 2022).

The industries working for the war proceed to evidence a two-digit increase in production, but there is besides a slowdown in this sphere. In particular, ammunition (hidden under the heading ‘production of finished metallic products’) and electronics and optical instruments. The armed conflict is besides mostly behind the results of the medical industry. In March 2025, Deputy Minister of manufacture and Trade Vasily Osmakov mentioned problems in the arms industry, who noted that most companies in the sector had reached maximum production capacity, which resulted in a simplification in wage increases. "New European Newspaper" analysis of jobs in arms companies^[3] showed that in the first 8 months of 2025 the median wage was inactive higher than the full in Russia, but has been decreasing since the beginning of the year. Further increases in employment and wages took place only in unmanned plants and rockets.

Extraction sector, inactive of crucial importance to the state of the economy and public finances of the FR, recorded a decrease in production since 2023. So far – thanks to the redirection of exports to countries that did not join sanctions (mainly China and India), and comparatively advanced prices of natural materials in the first years of full-scale war – the companies could minimise the losses incurred. State aid which financed infrastructure projects to increase Asian sales and subsidise rail tariffs for the carriage of coal, iron, mineral fertilisers and petroleum products proved peculiarly crucial for their results. From the beginning of the year, however, there has been a crucial fall in prices, especially oil and coal, in the planet markets, which has powerfully affected the performance of this section of the economy.

With respect to this year's dynamics of hydrocarbon extraction, at best we can talk about stagnation. This applies to all 3 delicate materials for Russia, i.e. natural gas, coal (both brown and stone) and oil. In January-August production of the first 1 decreased by 3.4% y/y and the second 1 increased by 0.2% y/y. In both cases this will keep the level from 2024 (minor deviations from these values are allowed). It is worth noting that the Russians thus get little than before 2022.

However, from a macroeconomic perspective, the most crucial function is played by Petroleum. According to this year's estimates, the yearly extraction of this natural material will scope a tiny decrease of 510 million tonnes y/y. According to the communications of the decision-makers, this reflects the request to keep production restrictions within OPEC+. It should be noted that since July, the FR has increased the operation of mining platforms due to the cartel's decision to loosen cuts, but it is improbable that this will increase in peculiar the indicators. Taking into account OPEC data (Russians stopped publishing their results in 2022), the extraction in the 3rd 4th of this year increased by about 200,000 barrels a day compared to the beginning of the year.

The absence of a crucial increase in extraction is primarily the consequence of export difficulties. This year foreign sales both natural gasand coal He'll most likely get a small drop. For the first of these natural materials progress because the failure of the European market, which at the minute cannot compensate Asian customers^[4].As far as the second is concerned, home exporters are facing high production and transport costswhich makes their offer unattractive to customers in Asia^[5]. The maintenance of last year's oil outlets, including the OPEC+ decision to increase the cartel's production, cannot be excluded, which will translate into exports.

Compared to 2024, the sales of hydrocarbons are besides little profitable due to their lower prices and a limited number of possible customers (especially for oil and gas). This state of affairs Negatively translated into financial indicators of Russian producers and exporters. The most hard conditions prevail in the coal industry. The crisis that has been going on since 2024, mainly in the economical sphere, is only getting worse. In the first 7 months of 2025, the net consequence of the full sector was negative – more than 65% of companies reported a failure (in the same period last year it was shown by just over half of entities). The tangible effects of the crisis include Company bankruptcy – According to the Ministry of Energy data, about 13% of companies in the sector closed between January and August.

This year's low oil prices with comparatively strong ruble besides have an adverse effect on the oil and gas industry. According to the financial reports for the first half of this year, the largest national companies registered Definitive declines in profits (sometimes even 2 or 3 times a year) and the full sector has achieved revenues by 50.4% lower than in the same period the year before. The sanctioning force – first of all the western embargo, forcing Russians to export mainly to Chinese and Indian markets – makes FR sale oil with a discount on another natural material species (in 9 months this year's discount was $10–14).

The country's oil and gas situation besides worsens Ukrainian attacks on fuel infrastructure. According to media reports, at the end of September, the Kremlin revised forecasts for the acquisition and disposal of crude oil. According to updated estimates, Russian companies would export more than 10 million tonnes (cost of fuel production) than expected at the beginning of this year – abroad sales are expected to scope 240 million tonnes, and the extraction will not change.

This revision suggests the request to match export volumes to the decline in processing resulting from Ukrainian attacks on refineries. besides abroad Russian natural material increased by 13% in September – i.e. by more than 0.5 million barrels per day – compared to August, while it happened decreasedfuel exports by 17%. This change corresponds temporarily to the intensification of Ukrainian strikes in August and September and illustrates their effectiveness. Forced sales increase mitigates global oil prices and at the same time negatively affects sector budget revenues (tax rate is calculated on the basis of export prices). Moreover, due to temporary exemptions from refineries, the inability to sale fuels continues to exacerbate the problems of the manufacture in FR, which affects the revenues of the companies there^[6].

As a consequence, Western restrictions the diamond mining sector is besides struggling. In 2024 their exports from Russia amounted to 30.4 million carats and was 38% y/y smaller than in 2021 State Alrosa – the world's largest maker of these precious stones – recorded almost a four-and-a-half drop in profit, to about $208 million (with the second half ending with loss). This forced the company to close the least profitable mines in 2025 and to reduce the worker withdrawal fund by about 10%. As part of Alrosa's support, the government decided to acquisition diamonds from budget funds, which will go to the state fund of precious Gochran metals. A full of 154 billion rubles are to be allocated for this intent between 2025 and 1927, i.e. $1.8 billion (at the current rate).

Agricultural production in the first 8 months of 2025. a slight increase – by 1.2% y/y. Sector measured However, with many challenges, first of all, with expanding costs, especially in relation to wage increases and credit support. In fresh years, it has besides been subject to always stronger regulation by the State (such as amounts and export duties). There is besides a concentration of assets around the Kremlin-related entities, including through nationalisation^[7] (At the beginning of this year, Rodnyje Polja – 1 of the largest grain merchants in the country – became the property of the country). Problems in agriculture are illustrated 14% y/y of agri-food exports,which resulted from both a decrease in the prices of cereals in the planet markets and a simplification in its sales volumes (it decreased by more than 20%). At the same time, import value increased by 15%, which in turn entailed expanding logistics costs and the request to increase purchases of vegetables and fruit due to low yield in the country. In the spring of 2025 we observed even in Russia potato deficit and more than double their prices y/y. The State remains dependent on imports vaccines, vitamins, feedingstuffs, cuttings, fish, etc., i.e. goods and natural materials essential to sustain national agriculture. Products of this kind make up the majority of agri-food imports. As a result, in 2025. FR again becamenet importer of agri-food products (since 2020, it has recorded a affirmative balance of trade in them).

Although Russian in the first 8 months of 2025 construction sectorincreased 3.5%, housing – his driving force in erstwhile years – experiences hard moments. The affirmative indicators of the full manufacture are projects carried out from public funds or from funds of state-owned corporations, including programmes for renovation of municipal housing in large cities in central Russia or expansion of the business centre in the capital. This year, the national budget for the "Infrastructure for Life" task will increase by almost 50% y/y and scope 1.17 trillion rubles (about $14 billion at current rate).

Housing construction has been declining since August 2024.,After the State withdrew from the massive preferential mortgage strategy and in parallel CBR raised interest rates. In the first 8 months of this year, the value of work in this manufacture decreased by 5.3% y/y. During this period, developers sold more than 17% of the square meters of apartments little than a year ago. Although the financial dimension decreased by only 8% (the housing prices were inactive rising), at that time the value of mortgage loans granted decreased by 37% y/y. At the same time, the debt of developers increased (according to the latest available CBR data in the first half of the year was 13%) and the situation of any of them remains difficult. While the overall sector had a net profit, more than 26% of the entities recorded losses. Deputy Prime Minister Marat Chusnullin reported that the commissioning of about 19% of housing projects is delayed, and around 20% of companies – including 1 of the largest developers in the FR of Samoliet – are facing bankruptcy. Given the importance of the manufacture for the economy as a full (household construction generates around 9% of GDP and 12% of taxes), the government offered support to construction companies, including a moratorium on the payment of penalties to consumers for failure to meet deadlines.

In the first 8 months of 2025. reduced freight transport – 0.6% y/y. The deepest declines affected rail and air transport (the second has been in crisis as a consequence of Western sanctions in rule since 2022). At the same time, we observe the process of concentrating assets in the hands of large players, especially state players – including Russian Railways, Sowkomflot (sea transports) and Rosatom (transport control on the North Sea Road and container deliveries in FR). This reduces competition in the sector and its flexibility.

The slowdown in economical activity is peculiarly evident in the condition of rail transport, primarily liable for the forwarding of bulk goods (mainly coal, petroleum products, building materials, iron metals or mineral fertilisers). Since 2024, the manufacture has been experiencing a decline in transport, in full in all freight groups – especially through supplies in the interior marketplace (-8.5%), in the first place building materials. Exports, which are priorities from a national perspective, have besides been reduced, inter alia, due to the periodic ban on exports of petrol, introduced by the government in 2024 and 2025. The state of the sector was besides affected by the simplification in export prices on home goods, especially coal, while the increase in transport tariffs (in the last 3 years the state-owned Russian Railways, controlling railway infrastructure, raised them by 65%). Despite state subsidies, transport remains costly due to distances, which negatively affects the profitability of exporters. As a result, in the first half of 2025, local coal companies – despite the quotas granted and export confirmations – abandoned 1 million tonnes of natural material by rail. At the same time, it was not possible to replace them with another goods due to besides short time for freight forwarders to conclude the applicable contracts. As a result, the financial results of the Russian Railways are deteriorating. Although the company continued to profit in the first half of the year, it was more than 22 times smaller than the year before.

Rail transport has been de facto dominated by bulk goods, mainly export-oriented, and the attractiveness of this mode of transport for smaller freight forwarders is decreasing. As a result, they frequently control to road transport, including over long distances, so that in the first 8 months of 2025 transports in Russia with this kind of transport increased. However, the expanding costs (increase in fuel prices and leasing of cars or wages due to driver shortages) caused a decrease in the sector's revenues. In the first 7 months of 2025, the failure was recorded by over 26% of companies, and many of them are facing bankruptcy, as the negative financial consequence has already been recorded for the second year.

Come on. inflation It remained rather high, due to the deficiency of request and economical activity decreased its dynamics – mainly due to industrial goods whose prices in September this year were only 3.9% higher than those last year. Against this background, however, petrol is heavy minted – its price increased by 12.7%. In the category of goods without which society cannot survive, intensive growth is inactive observed (the prices of agri-food products rose by 9.5% y/y and services by 11.1% y/y).

In 2025, Russia maintains a advanced – though not evenly spread across all groups – increase in the real income of society. In particular, self-employed earnings, dividends, interest on deposits or bonuses for members of supervisory boards are behind this. At the same time growth rate of real wages powerfully However, braked. Unemployment remains at a evidence low level – 2.1% – but we see a decrease in the number of vacancies (in September this year – about 25% y/y). Pensions and social contributions increased by small more than authoritative inflation. At the same time, the cost of surviving of the poorest in the country has risen at a much faster rate (today, the average pension in FR is little than $300) – most of their money is consumed by food, medicines and municipal housing charges, and these goods have gone well above the authoritative consumer price index.

The state of the national economy, and above all public finances, has besides negatively affected international marketplace downturn. Since the beginning of the year prices of the most crucial FR export goods, especially crude oil, have fallen strongly. The average export rate of a barrel of Russian natural material in September this year was $57.6 versus $70.3 a year earlier, while prices below $60 per barrel, i.e. below the base price recorded in the budget, have remained since March this year. As a result, Russian exports decreased by 5% in the first 7 months of 2025 and abroad sales of mineral products (the vast majority is about oil) by more than 15%.^[8]. At the same time imports increased somewhat – by little than 1%. Interestingly, China, FR's largest trading partner, reported a simplification in both the supply of goods to the country (by 7% y/y) and its imports (by 9% y/y).

The worsening situation in the economy has led to strong growthState budget deficit in the first 9 months of the year, as indicated by the data of the Ministry of Finance FR. Due to low oil prices and strong ruble Oil and gas revenues decreased by about 21% y/y, and the slowdown of economical activity led to a decrease in the rate of growth of another income to around 13% y/y (compared to 15% planned) – this applies in the first place to VAT, but besides to profit taxation for companies, whose rate in 2025 the government raised by 5 pp. to 25%. At the same time, expenditures were 19.5% higher than the erstwhile year; they mainly increased – by 34% y/y, to nearly $90 billion (after the current rate) – public procurement expenditure (especially arms). In total, at least 40% of all resources are officially allocated to national defence and public safety throughout the year, although the real costs of war are much higher and are besides hidden in another budget lines (they most likely exceed 50% of expenditure), And there's money going for it, too.from the budgets of the FR regions and corporations, especially the state.

Consequently, the government was forced to second this year revision of the budgetary assumptions for 2025 and its parameters (the first occurred in April^[9]). The results of the budget are mainly driven by a slowdown in economical growth and a strong currency.

Due to the continued decline in gross throughout 2025, the budget deficit is expected to increase to around $66 billion. However, it may prove even higher, as traditionally in December each year The Kremlin decides on additional expenditure, including promotion.

The resulting deficit is intended to be covered in peculiar by bond issuance. Instead, they want to save the resources collected in the National Prosperity Fund (FDN), which, in the current situation, supply flexibility and the ability to respond rapidly to the rapidly changing marketplace situation, peculiarly in the event of a further fall in oil prices. After more than 3 years of full-scale aggression, FDN liquids shrunk by half and is about $51 billion (after the current course).

Low reserves and advanced interior debt handling costs (in 2025 it will consume around 7.5% of all budget expenditure) contribute tofurther shift of war costs to citizens and businesses: another decision to increase the taxation burden. In 2026, first of all, the VAT rate will be raised to 22% (i.e. 2pp) and at the same time the liquidation will be subject to many reductions for tiny and medium-sized businesses. The fiscal policy of the state negatively affects the request and investment programmes of companies, which de facto reduces even more the economical activity in the country and, consequently, the value of the taxes.

The possible for a further strong increase in budgetary expenditure is so severely limited. Authorities, looking for income, can let inflation to emergence or the devaluation of the ruble, but in the long word these measures can complicate the economical situation even more. As a result, the government's draft budget for 2026 foresees only a 4% increase in expenditure with a very optimistic – as much as a 10% increase in revenue. At the same time, national defence and interior safety efforts are even reduced. However, it is crucial to remember that the actual implementation of the budget – as the erstwhile years show – sometimes deviates powerfully from the assumptions. The war remains a precedence of the Kremlin, and for its backing it can make additional funds, even at the expense of another spheres. However, its scope for manoeuvre is clearly narrowed down.