Russian President Vladimir Putin has expressed concerns about the state of the country’s economy, emphasizing the need to avoid recession. We can’t wait. In June, he sounded an alarm. He stressed, more palpably than anywhere in the world given Russia’s current isolation on the world stage and fiscal woes at home, an economy shouldn’t fall into recession.
Ever since the onset of the war in Ukraine on February 24, 2022, Russia’s economy has been pinched mightily. Inflation exploded to 17.8% immediately following the invasion. To combat the rampant price growth, the nation’s central bank acted and raised interest rates. By July 2025, these efforts were proving successful, with the inflation rate cooling to 8.8%. This number is still way too high – a clear indication that more work needs to be done.
The Russian budget is under extreme strain. For the first seven months of 2025, it showed a shortfall of 4.88 trillion rubles, the equivalent of $61.1 billion and over 2.2% of the country’s GDP. UCG’s analysis highlights the role of rising government spending in deepening the shortfall. In fact, it increased by 20.8%, hitting 25.19 trillion rubles, around $317.8 billion, over that same timeframe.
Russia’s economy posted an impressive 4.3% growth rate in 2024. The Central Bank of Russia (CBR) has depicted quite a gloomy scenario for 2025. They even forecast a sharp deceleration in growth, projecting just 1% to 2% growth. After a very strong 4.2% growth rate in the second quarter of 2025, growth decelerated to 1.1% year-over-year. This represented a moderation from a stronger 1.4% expansion in the opening quarter.
Putin is not only deeply unpopular but knows there are major economic storm clouds on the horizon for his administration. He reiterated that healthy, sustainable growth means a little inflation, low joblessness and persistent favorable economic habits. Yet rising specialists are cautioning in regards to the threat of recession and financial decline. This is unacceptable under any circumstance.
Russia’s response to long war – Kremlin appears cavalier about a short spell of stagnation. Analysts warn that if this occurs in tandem with falling oil prices, it could be disastrous by deepening the blow and further compressing fiscal revenues. Alexander Kolyandr noted, “For the Kremlin, a brief period of low growth is tolerable, though combined with lower oil prices, it would reduce fiscal revenues. The administration’s biggest bet is that this dovish turn in the economy will not open the door to a long-term recession.”
With inflation pressures starting to recede, the CBR has revised its forecast for the months ahead. It now predicts that inflation will exceed this threshold for years – until 2026 – as a result of slowing domestic demand growth. The CBR commented that “current inflationary pressures, including underlying ones, are declining faster than previously forecast,” suggesting that there may be hope for stabilization in the medium term.
It should be noted though that caution is deeply needed, as business sentiment and investment intentions in Russia have allegedly dropped to multi-year lows. Liam Peach, a senior emerging markets economist at Capital Economics, asserted, “The economy is clearly struggling amidst imbalances that have built up due to the war effort. We expect growth to slow further over the coming quarters.”
While government spending has been maintained to support defense and social programs, analysts suggest cuts may be necessary elsewhere to stabilize the budget. Kolyandr warned that “so far, the government can maintain defense and social spending, but may need to cut elsewhere, which would put it on a dangerous path.” He warned that if the government didn’t reverse course on fiscal support, it might bring back the worst kind of high inflation.
Putin’s meeting with German Gref, CEO of Sberbank, on July 29, 2025, underscores the urgency of addressing these economic challenges as high inflation rates and sluggish growth continue to loom over Russia’s financial landscape.