Russian macro: With the economy persistently slowing, the CBR has to act
In our June macroeconomic forecast, we revised Russia's 2025 full year GDP growth outlook down to 2.0%, with a slightly better figure of 2.4% for next year, expecting a "muddling through" scenario. We noted that the growth model that emerged during the pandemic in 2020 and solidified amidst the 2022 Ukraine conflict relied heavily on rising government stimulus but has now reached its limit. The budget can no longer sustain inflated spending as government revenues have slowed this year. A strong ruble has reduced oil-and-gas revenues, while recent rapid disinflation has trimmed non-oil-and-gas income.
Excessive government stimulus not only supported growth but also spurred inflation, forcing the CBR to raise the key rate—arguably too aggressively. Inflation eventually slowed m-o-m this year, as did economic growth. Russia’s medium-term economic outlook remains uncertain, with the government delaying the submission of the 2026 draft budget to the Duma. Finance Minister Siluanov has stated that the ruble is expected to be stronger next year than previously anticipated, prompting a reassessment of earlier projections.
This report focuses on short-term trends, which appear less promising than a year ago. According to Rosstat, GDP grew by 1.1% in 2Q25 and 1.2% in 1H25, suggesting that annual GDP growth for 2025 may remain at an unimpressive 1.2%. To secure faster growth, the nation’s economic policy is creating the need to pay more attention to the domestic macroeconomic environment and to be more reactive and adaptable to rapidly changing developments. As external factors remain highly uncertain and will remain so for the foreseeable future, a more careful consideration of purely domestic policies is a key element in reducing overall uncertainty. Maintaining a limited budget deficit and turning to a less hawkish monetary policy is what we expect the authorities will do.
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