Newsweek: Russia's Economy Is Heading Toward Stagnation

• 23.10.2025, 16:23

Because of the sanctions, the country can only rely on domestic borrowing.

Russia's economy is slowing down after two years of growth on military orders, according to the Vienna Institute for International Economic Studies (WIIW). According to the institute, the country's GDP growth in 2025 will be only 1.2% compared to 4.3% Newsweek (translated by Charter97.org).

Experts note that it was possible to avoid a technical recession only at the very last moment. The main factors behind the downturn were high interest rates, falling oil revenues and slowing investment.

The Central Bank's key interest rate, which remained at 17-21%, seriously deterred investment. Although inflation has fallen to 4%, high rates continue to hamper development. Even a possible decrease of 4-5 percentage points is unlikely - the Central Bank is more afraid of a surge in inflation than stagnation.

Industrial growth in 2025 will be only 0.8%, with almost all of the growth provided by military production. Investment in equipment and technology remains at pre-war 2021 levels, limiting modernization.

In addition, Russia will face the largest budget deficit since the COVID-19 pandemic. Because of the sanctions, the country can only borrow domestically, which, with high interest rates, makes borrowing expensive. To compensate for the losses, the authorities are raising taxes: profit and income rates are rising, and VAT will increase in 2026, with the limit of benefits for small businesses reduced from 60 to 10 million rubles per year.

Experts warn that the combination of spending cuts, tax pressure and high rates will lead Russia's economy to a period of prolonged stagnation.