Analysts believe that the growth of the Russian economy has passed its peak after overheating in the first half of the year. Even active military production to support the war against Ukraine does not save the situation.
Points of attention
- The Russian economy, having peaked in growth, is now facing the possibility of a collapse as analysts predict a slowdown to 1% per year by 2025.
- The growth of the military-industrial sector, although significant, is no longer able to compensate for the decline in other sectors of the economy, signaling a potential recession.
- The Russian economy's struggles are exacerbated by instability in industries, sanctions, and fears that growth in military production may soon rely on civilian industries.
- Increasing interest rates, production constraints, and stretched labor supply are contributing factors to the predicted slowdown in economic growth in Russia.
- Forecasts suggest that the Russian economy may face a sharper decline due to the costs of the war against Ukraine and sanctions, with analysts warning of an imminent collapse.
The Russian economy is close to recession
According to economists, in 2025 the annual growth of the Russian economy may amount to about 1%.
Military production, which contributed to the rapid growth, continues to grow, but can no longer compensate for the decline in other sectors of the economy.
Russian industry shrank in September for the first time since April 2022. The economy grew by 2.4% year-on-year in August, mostly due to a delay in the harvest season. This is the slowest rate since the recession that followed the Russian army's invasion of Ukraine in 2022.
Slowing growth outside the military-industrial sector indicates Russia's transition to a military economy. In 2023, the country quickly recovered from recession, increasing the economic growth rate by 3.6% per year through defense spending. Now there are fears that the growth of military production may take place through civilian industries.
Interest rates in Russia are already at crisis levels, and on October 25 the central bank of the Russian Federation may raise them to 20% in an attempt to curb inflation. The economy has almost reached its full production potential, the bank said in a statement.
Of course, the central bank predicts economic growth this year at the level of 3.5-4%. Russia is trying to slow down the overheating of the economy, because the resources needed to increase production are almost exhausted. Growth is expected to slow in the second half of the year due to production constraints and "stretched labor supply," followed by a further slowdown in 2025 and 2026 to around 1% per year.
On October 22, the International Monetary Fund worsened the forecast for the Russian economy. It is noted that the growth in 2025 will be at the level of 1.3% against 1.5% earlier.
Russia's economy is approaching collapse
In April, Business Insider predicted that the Russian economy could last another year and a half before it starts to weaken.
For its part, Bloomberg reported that the Russian economy, which is suffering from the huge costs of the war against Ukraine, could slow down sharply due to sanctions against key sectors.
Business Insider later noted that the war against Ukraine is the only thing keeping Russia from slipping into recession.
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